A CGT WHITEPAPER

How P&G Does Vendor Management Inventory -

A New Era of Global Innovation PRODUCED BY

Experts from P&G and Datalliance Answer Audience

Questions Posed During a Highly Interactive Web Seminar
about VMI’s Impact on the End-to-End Supply Chain

Vendor Managed Inventory (VMI) is one of the nies as well as a good number of retailers. For
most widely accepted strategies for inventory one hour, Dr. Alistair Hill, director of Global
management in the consumer goods industry. Business Services for The Procter & Gamble
Fundamentally, the manufacturer manages Company (P&G), and Carl Hall, president
inventory levels for retailers or distributors and chief executive officer of Datalliance, cap-
by generating appropriate replenishment pur- tivated the audience with refreshing perspec-
chase orders based on data provided by the tives around an age-old process. Attendees
trading partner. For many organizations, VMI flooded the lines with enquiries for the speak-
is a process that has been in place for years, ers, but with the clock ticking down, many of
which seemingly runs itself. However, as their burning questions went unanswered.
technology continues to improve and trading As a result, CGT caught up with Alistair
partners look for better ways to collaborate, Hill and Carl Hall after the event to get their
the industry is yearning to switch VMI off of insights around those questions that were left
“auto-pilot” and unleash its full value with unanswered during the web cast. This docu-
new insights and technology. ment consolidates the live Q&A session with
In June of 2014, CGT hosted a webinar on the interview conducted afterward to present
this important topic, entitled “How Procter more insights into VMI and how leaders are
& Gamble Does Vendor Managed Inventory transforming the process into a key strategy
(VMI) - A New Era of Global Innovation”. for end-to-end supply chain management.
With more than 300 registrations, it was one
of the best-attended webinars in CGT’s history
and included representatives from many of
SPONSORED BY
the world’s leading consumer goods compa-

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 A CGT WHITEPAPER

Webinar Recap
PARTICIPANTS :

Alistair HIll Carl Hall

Dr. Alistair Hill leads P&G’s customer Carl Hall is the President and CEO of
service and physical distribution global Datalliance where he leads the strategic
IT systems, strategy and implementation direction of the world’s leading independent
program. Located in Geneva, Switzerland, VMI service provider delivered as a cloud-
Hill has a track record of driving innovative based platform. Backed by extensive customer
breakthrough business transformation and service, Datalliance manages billions of
value creation in transportation planning dollars in orders, millions of SKUs, and
and execution, warehouse management, thousands of locations worldwide for leading
customer demand integration and automation companies in consumer, industrial
of order management. and healthcare markets.

Among its peers in the consumer which detailed how P&G’s biggest
goods industry, The Procter & Gamble customer went from an average diaper
Company (P&G) is renowned and retailer of 25,000 cases per week to 75,000
respected for the sophistication of its cases per week in just three weeks,
supply chain, which has been utilizing increasing until it became the largest
VMI as a valued supply chain capability diaper retailer in the United States.
to enable critical customer collaboration
for more than 30 years. In the early 2000s, P&G decided to
focus VMI only on larger volume
P&G’s Director of Global Business retailers. Over the past few years, Hill
Services, Dr. Alistair Hill, kicked off the noted that the VMI volume trend has
webinar by presenting some history been stable in North America and
about VMI, which originated in 1984. Western Europe, while VMI is now
P&G recognized the opportunity right increasing in developing markets and
away. Its pioneering process was made amongst customers who are looking to
public by the Harvard Business Review, increase collaboration with P&G.

T o Li sten to this Webin ar On Demand, Go To :

www.consum ergoods.com / howpgdoesv m i

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 webinar reca p

VMI’s Proven Value Vehicle fill rates are another area of

It is generally accepted that VMI provides substantial progress, where a 4 percent
substantial benefits throughout the supply to 6 percent improvement is typical on a
chain for both retailers and manufacturers. VMI lane versus an EDI lane, primarily
For retailers, on-shelf availability has been because the company can mix products
shown to increase and is typically 1 percent of varying weights together for optimal
to 2 percent higher than using EDI alone. replenishment. Promotion effectiveness
In addition, retailers see lower inventories, also registers higher as do new product
typically about 33 percent lower at introductions in VMI lanes.
distribution centers for those customers
on VMI versus EDI. They have also Next-Gen VMI
experienced improved on-time delivery (1 Always focused on continuous
percent to 2 percent higher than EDI), and improvement, P&G recognized the need
lower rejections and returns. But, metrics to move to a more modern VMI platform
aside, the value of VMI all comes down to and selected Datalliance as its partner,
customer satisfaction. primarily because it offers a flexible and
cost-efficient solution.

P&G has utilized VMI as a valued In addition to the improvements noted

previously, Hill points to “massively
supply chain capability that enables improved efficiency of our VMI analyst”
using Datalliance. Because of the tool’s
customer collaboration for more ease of use and advanced algorithms in
than 30 years. building orders, P&G has also been able
to optimize the actual time that it takes
to generate VMI orders while improving
“Quite frankly, a lot of our retail customers vehicle fill capabilities. Analysts touch the
tell us that when they’re on the VMI solution about 50 percent less than their
process, there’s less to worry about, previous system, reducing the number
because P&G is managing that whole of information searches and improving
replenishment process for them,” said Hill. efficiency. New capabilities have been
introduced, including automatic order
The benefits that VMI delivers for P&G consolidation that, when combined
are likewise impressive, and present with the increased efficiency and
similarities to retailer benefits. P&G reduced touches, resulted in an overall
conducts VMI throughout Western Europe productivity improvement of 20 percent
and North American where it accounts to 25 percent for VMI analysts.
for about 20 percent of sales in those two
regions. There are approximately 150,000 P&G is also more responsive to specific
location SKU combinations on VMI across customer requirements because of the
fabric care, home care, baby care, beauty, system’s flexibility. Those requirements
female care and the fragrances business. vary from single truck deliveries to
minimum shelf presence at stores in
With this VMI footprint, on-shelf Western Europe. The new system has
availability has increased, which means also helped to drive standard global
more products are sold. Case fill rates work processes, and P&G has created a
also increased, again, so P&G can sell portfolio of VMI best practices that can be
more products. The company has better implemented quickly, thereby improving
control of shipments and inventory, and productivity and VMI results worldwide.
makes better decisions around product Finally, the software-as-a-service delivery
distribution in short-stock situations. model has allowed tighter integration

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 webinar reca p

To L isten
to this W ebi nar
On Dem and,
Go To:
www.consumergoods.com/
both internally and externally with howpgdoesvmi
customers.

Additional new capabilities include:

• Automated data setup through
integration to SAP
• Automated phase-in management for
new product codes
• Flagging of critical inventory levels to Datalliance manages an incredible
enable analysts to step in volume of VMI activity worldwide:
• Store-level forecasting $38 billion worth of transactions, more
• Integration of promotional forecasts at than 100 customers, 21 million SKUs
the store level and 20,000 locations. Focusing on the
• Consolidation of VMI and EDI orders consumer goods industry, that volume
from the same customer includes 16 manufacturers of all sizes and
• Interface with order builder solution to VMI maturity levels, including four of
maximize the cube fill; early test have the top 10 as ranked by CGT, and more
shown a potential additional 5 percent than 50 retailers across North America
improvement in vehicle fill rates and Europe. Datalliance also provides
VMI services to other industries,
including industrial manufacturers
P&G is committed to drive increased (electrical, plumbing, power distribution
and other B2B markets) and healthcare.
value out of the synchronized
supply chain, and VMI is a big part According to Hall, 78 percent of
Datalliance’s consumer packaged goods
of that vision. customers report an expected increase in
VMI activity. That’s a big difference from
four or five years ago when VMI was
In summary, P&G is committed to drive on the decline. Research from Supply
increased value out of the synchronized Chain Insights reinforced the upward
supply chain, and VMI is a big part of swing of VMI’s value in the supply
that vision. It facilitates visibility into chain. Order management reliability was
its customer’s unconstrained demand, the top benefit, followed by the ability
which allows for “perfect logistical to manage customer service levels,
orders” that can be followed through reduction in out of stocks, improved
the supply chain to fulfill customer business partner collaboration and
requirements at a lower cost, higher meeting inventory requirements.
frequency and improved case fill rate.
Reinforcing Hill’s earlier points on
Hill concluded, “We see VMI as being flexibility as a key factor, Hall explained
a foundational element of our future how a cloud-based VMI platform allows
synchronized supply chain.” suppliers to deal directly with many
retailers and different types of trading
The VMI Enabler partners outside of the manufacturer’s
In the second half of the webinar, firewall, all in a familiar browser setting.
Datalliance President and CEO Carl Hall
shared his perspective on VMI based an “VMI is still growing because it provides
impressive track record of experience in real value back into the supply chain,”
the field. closed Hall.

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 A CGT WHITPA PER

VMI Questions Answered

P&G and Datalliance Provide Answers to Audience Questions about Best
Practices for Next-Generation VMI Strategy and Execution

Strategy & Scope

Q: What best practices must consumer goods manufacturers follow in order to improve
VMI processes?
Hill: Before you dive in to any VMI process, you need to step back and really understand your
company’s overall order acquisition strategy. At P&G, we really spend time stratifying our custom-
ers into order acquisition brackets — collaboration brackets based on order sizes, order patterns,
frequency — and do detailed analytics to understand them based on those attributes. You must
also clearly understand why VMI is important to both the manufacturer and the retail customer.
What is the primary business driver that you are trying to achieve? It could be inventory reduc-
tion in the supply chain, improved case fill rates or improved vehicle fill rates. It could simply be
a better collaboration and understanding, or hands-off processes. It’s very important that both the
manufacturer and the retailer understand what they’re trying to get out of their VMI relations, then
understand the work process and organizational impact associated with moving to VMI-type pro-
cesses. At the end of the day, this has got to be a win-win for both the manufacturer and the retailer.

Q: What are the key attributes of a good VMI supplier?

Hall: The supplier needs to treat VMI as an important process. They need to put good people
against it — people who are going to care about the process and the replenishment of those goods
at the same level or a higher level than the retailer. That’s really what makes it successful; it’s the
people who use the system, not necessarily the system itself, although good tools are imperative.
During our last two user meetings, we heard retailers clearly state that they value the suppliers who
value this process and value their business. That’s really what it comes down to more than anything
else. We put a very good people against it. We call them “VMI analysts” because they are true analysts
working within customer service to increase the end-to-end collaboration with customers.

Q: Which party tends to initiate the VMI conversation, the manufacturer or the retailer?
Hill: It can come from either side. We tend to initiate that discussion after we’ve done the stratifi-
cation and decide which retailers fit into the VMI scope. For example, in Latin America, we started
doing business with customers 20 to 25 years ago. Some of those small customers have grown very
rapidly over the last 20 years, so now we may need to go back and suggest that the original order
acquisition strategy is no longer applicable to its larger business today. Then, we present a more
efficient way of doing it, and why we think it could be a win.

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 VMI Questions a nswered

However, many times retailers do approach us. They have either heard about the fact that we do
VMI with customers or heard about the benefits that both P&G and the retailer get from it.

Q: In a difficult economic environment, many customers choose EDI over VMI because
they don’t want an over-abundance of inventory sitting in their DCs. How can the sup-
plier convince retailers to try VMI?
Hill: In difficult economic times, VMI makes even more sense. Our experience shows that VMI
delivers substantial savings to the customer by reducing inventory investment by an average of 30
percent. We believe the savings come not so much from sophisticated math, but from the collabora-
tion brought about by VMI.

Q: Why are retailers in regions outside of North America or Western Europe now ask-
ing for VMI? What about distributors?
Hill: Outside of Western Europe and North America, we’re seeing a lot of interest in Latin America
and the start of interest in Asia. I think it’s driven by scale. The customers in these regions are get-
ting to a size where they need to improve their processes in a way that enhances relationships with
customers. The retailers want better customer service. They want better vehicle fill. They want to
find ways to work with manufacturers. They now have the scale to start to demand that from their
manufacturers. We have not yet implemented VMI in Latin America, but we are in the process of
planning for that. We see it as one of our major growth areas.
We also see a lot of interest from distributors as they have grown, particularly in Latin America.
They don’t see themselves as sales organizations anymore, but more like retailers, so they want
to start working through the same processes. Consequently, in the old three-tiered model, you’re
seeing better collaboration now between the distributors and resellers, and the stores as well. It’s
a natural progression in an organization’s journey to become more integrated and drive out costs
on that three-tier model.

Hall: The other thing that comes into play here goes back to my comments about what makes a
good supplier. At one point in time, it was all about the math. As retailers invested more money in
more sophisticated systems and better math, they thought they didn’t need the suppliers help. But,
they are realizing that it’s not all about the math. It is about working together and understanding
what’s going on in both sides of the equation. We have many customers that support wholesale dis-
tributors in a number of different markets. The benefits for wholesalers are the same as for retailers
— higher service levels, increased inventory turns, and a closer working relationship with the VMI
supplier that helps both parties grow sales. The bottom line is that if the distributor is in a better
position, then the retailer gets what it wants and the manufacturer is better able to fill that order.

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 VMI Questions a nswered

Technology & Execution

Q: How does integration between the manufacturer and retailer work?
Hall: The integration, although not terribly difficult, is continuing to expand to allow more data
to be used, and to allow more knowledge on both sides of the equation. On the retailer side, we still
use the same EDI technology that we’ve been using for 20 years. We’re now seeing the expansion of
that model to include more data and more data fields. We’re seeing expansion into additional data
elements, like promotion forecasts in particular. On the supplier side, we’ve done a lot with web
services, and that is directly tied to the back-end processes within the supplier’s ERP systems. This
ensures that we’re getting the right data to drive the process as well.

Q: What is the primary data capability that the customer must have to facilitate VMI?
Hall: It’s pretty simple. The retailer or distributor just needs to send EDI ‘Product Activity’ records
(852, INVRPT or equivalent) and receive EDI ‘PO Acknowledgement’ records (855, ORDRSP or
equivalent).

Q: What process did P&G follow to identify Datalliance as its VMI provider?
Hill: As you might expect, we looked at a number of different options before selecting Datalliance.
We went so far as to pilot a couple of those options. Believe me, we looked closely at the alternatives.

Q: Regarding integration, is the order builder a part of Datalliance or a part of P&G’s

SAP backbone?
Hall: Datalliance has sophisticated order-building capabilities built in. This has been further ex-
panded through integration with the ORTEC Routing, Pallet and Load Building Optimization Soft-
ware that P&G has embedded within its SAP system. We can utilize this integration with other sys-
tems as well.

Q: Is the software able to load build a lighter product on top of a different SKU that
is heavier?
Hall: Yes, Datalliance can assemble a full truckload that includes the stacking of different products.
We don’t directly provide a loading diagram; however, when a diagram is needed, we can provide
that through integration with ORTEC.

Q: What if we don’t run our business on SAP?

Hall: Datalliance can work with just about any supplier and retailer system. We have more than
100 suppliers and support several hundred retailers and distributors. Across that community, we’re
integrated with every major ERP and retail management system there is. The integration points are
really pretty simple on both ends.

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 VMI Questions a nswered

Q: Has P&G evolved from a suggested order replenishment model to an automated order
replenishment model?
Hill: Our current business model calls for VMI analysts to review suggested orders before launch. If
there are no exceptions or alerts, they are quickly released. We are evaluating how to fully automate
some of our customer replenishment processes.

Hall: Datalliance does have an “auto-launch” capability driven by user-defined rules. Suppliers in
other categories more often use that approach where the dollar/euro volume is not as high.

Q: Do retailers review and approve orders proposed by VMI before they are placed?
Hill: No, there is not a customer approval step in our process. With VMI, replenishment is
our responsibility.

Hall: The Datalliance system is capable of allowing for customer review. In other industries, we
have a few suppliers that do that with some of their customers.

Q: Is “integrated availability check” a built-in functionality in Datalliance?

Hall: Yes, it is. Each day, we ask the supplier to send us a file of items that are in short supply. That’s
pretty easy for the supplier. This lets us only use the short supply product where there is a real need,
conserving the product and making sure it gets to the places where it can do the most good.

Q: Is integration with SAP’s Sales & Distribution module provided in the standard
Datalliance solution?
Hall: Yes, we use a web services approach to look at current non-VMI open orders in SAP Sales
& Distribution, so we can combine VMI orders when appropriate. That is a real-time process.

Q: What challenges did P&G face during the VMI implementation and how did it
overcome them?
Hill: Just the usual things you would expect with any collaborative information-sharing effort;
things like verifying data accuracy, aligning resources to discuss issues and addressing customer-
specific requirements. Those things just take time to work through.

Q: How long did it take P&G to switch from its old solution to Datalliance – from setup,
testing, training to reaching a “total comfort” level with VMI analysts?
Hill: It took just about two years to switch over our VMI customers in Western Europe and North
America. For a program of our size, we initially projected it would take three years. We were thrilled
to have it completed a year ahead of schedule.

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 VMI Questions a nswered

Q: Does P&G measure forecast accuracy, and if so, what is the estimated improvement
using the advanced VMI capability?
Hill: We are more focused on our ability to respond dynamically to swings in demand than on we
are on measuring forecast accuracy. With Datalliance, the forecast is updated each week and demand
spikes or dips are identified as alerts each day. For example, if sales are running ahead of the forecast,
the responsible VMI analyst is alerted. They then choose the projected forecast or the normal weekly
forecast based on a number of factors. The key metrics that we measure are:
• Case Fill Rate - How well did we complete the order in full?
• Vehicle Fill Rate - How well did we utilize our assets?
• Customer Inventory Level
• VMI Order Touches - Efficiency of the process

Q: Where does the feed of store-level data/forecast come from?

Hall: We have a number of customers that are doing direct store-level replenishment in the club,
drug, apparel and other categories. The data can come to us in different ways from different custom-
ers. Generally, it is sent in the form of EDI ‘Product Activity’ or ‘Forecast’ records. For example, some
retailers include a roll-up of that day’s store demand on each DC’s Product Activity record, some
send a Product Activity record for each store, and some send a Forecast record for each store. In some
cases, the customer has created the data in their own systems and, in other cases; they are using a
third-party solution to do that. Datalliance handles all of those situations.

Q: For P&G customers on VMI, do you use a feed from the VMI system as more of a
dependent demand (rather than forecast shipments in demand planning)?
Hill: Demand planning remains a critical supply chain process for all customers. Demand plan-
ning drives our short-term manufacturing planning and mid-term material supply planning. VMI
generates the orders, which fulfill from the stock that is generated from demand planning. The two
processes work in harmony.

Q: Where does co-managed inventory (CMI) come into play for P&G?
Hill: We do a CMI replenishment process with some customers. In that case, the customer sends us
proposed orders with associated priorities. The Datalliance system optimizes orders with “must go”
items and then fills them out with “look-ahead” items. This is integrated into our daily VMI processes.

Q: Is promotion planning within the VMI system manual or automated?

Hall: In addition to manual entry by the VMI analyst, the Datalliance platform supports the use of
the promotion quantity on the customer’s Product Activity record in addition to importing a separate
file, for instance, from the supplier’s customer team.

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 VMI Questions a nswered

Hill: One of the beauties of the VMI model is that you can start to integrate promotional events with
demand elements from the retailer, which provides visibility of these events coming forward. This
is what is going to happen. I can use that information as a primer in my planning systems, making
sure that supply is ready when I receive the order to start pumping that inventory through the supply
chain. This way, I’m not carrying lots and lots of safety stock in my supply chain for events that only
happen infrequently.

Q: Is there a Datalliance user group that convenes to discuss and vote on enhancements?
Hall: We have an annual user meeting for both suppliers and their retailer/distributor partners.
We review our tentative roadmap for the coming year and interactively identify priorities. Beyond
the annual meeting, we conduct surveys and have a high level of personal interaction with our cus-
tomer community throughout the year. Important customer care conversations with customers are
funneled to our Vice President of Consumer Goods Solutions. He also visits and holds web meetings
with customers to collect first-hand perspectives.

Q: Can you share parting words for suppliers that want to replicate P&G’s VMI success?
Hill: We’ve been doing VMI for 30 years. Quite frankly, we didn’t really move beyond where
we were 28 years ago until very recently. For P&G, success lies in understanding or using VMI tools
and capabilities to get much better visibility into the total end-to-end supply chain.
Some people are looking for very fancy solutions for that, but VMI is already there, offering a lot of
information that you can use to optimize the end-to-end supply chain for the benefit of the manufac-
turer, the retailer and the consumer.
We’re really looking forward to further optimizing processes, particularly the integration of the
VMI processes with our backend order management, source determination and vehicle fill process
to drive more cost out of the end-to-end supply chain. That’s how we see P&G moving forward with
VMI in the next couple of years in addition to bringing on new customers in North America and
Western Europe, and expanding into Latin America and Asia.

Hall: Look at what you can get out of this technology and figure out the right place to apply it
within your customer base. It’s not for everybody, but in a lot of cases it provides tremendous value.
Some people think VMI is “old news”. We’re trying to turn that around and help companies be more
aware of the things that they can do better now because of VMI.

About Datalliance
Datalliance is the world’s largest independent Vendor Managed Inventory (VMI) service provider.
Delivered as a cloud-based platform backed by extensive customer service, Datalliance VMI makes
it easy for suppliers and their customers to establish sales and inventory management relation-
ships that fully align business objectives, improve collaboration, and streamline supply chain op-
erations. Datalliance manages billions of dollars in orders, millions of
SKUs, and thousands of locations worldwide for leading companies
in consumer, industrial and healthcare markets. For more information
about Datalliance, visit www.datalliance.com

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