Multi-Echelon Inventory Optimization at Procter & Gamble, management homework help

Answer all the questions to BOTH CASES below. Your answers should show that you are giving thoughtful and clear expectations of not only the “do” but the “why” as well. APA is not required but your paper should be professional.

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Multi-Echelon Inventory Optimization at

Procter & Gamble

The various EOQ models presented in this chapter are

known as single-stage models; they only attempt to optimize

inventory of a single item at a single location. The items are

considered in isolation, and not how this single item’s inventory

level might affect the entire supply chain. This is a somewhat

simplistic but necessary view of inventory optimization

for many companies, because of the complexity involved in

considering the relationship among many different inventory

items at many locations for an end-to-end supply chain.

However, many Fortune 500 and other companies across a

wide range of industries are now approaching inventory

optimization from a total supply chain perspective. This

relatively new approach, called multi-echelon inventory optimization,

uses various software packages designed for the

purpose to scientifi cally determine the minimum inventory

levels for multiple materials, parts, subassemblies, and fi nished

goods across the entire supply chain. One company

that has had great success with the multi-echelon inventory

optimization approach is Procter & Gamble.

Procter & Gamble, headquartered in Cincinnati, Ohio,

is one of the world’s leading and best-known consumer

products companies with sales over $80 billion in 180

countries for such products as Crest, Tide, Pantene, Pampers,

Charmin, Cascade, Duracell, Cover Girl, and Gillette,

among many others. Each of its three global business

units—beauty and grooming, household care, and health

and well-being—individually is large enough to be on the

Fortune 200 list. P&G’s supply chain network consists of

500 supply chains that include 145 P&G-owned manufacturing

facilities and 300 contract manufacturers. Inventory

management across a supply chain network of this size

and magnitude is a complex process. P&G’s logistics management

workforce that plans material supply, capacity,

inventory, and logistics across its supply chain network

has over 5000 individuals. P&G’s inventory management

process is implemented in a two-step approach. First,

spreadsheet–based inventory models (employing assorted

mathematical inventory optimization tools) are applied locally

to optimize each stage in the supply chain. These

models are used in about 70% of P&G’s business units.

Next, multi-echelon inventory optimization software is implemented

in about 30% of P&G’s business units across

more complex supply chains.

The North American supply chain for cosmetics liquid

makeup in P&G’s beauty products division includes 500

stages with 8 raw materials, 10 uncolored work-in-process

materials, 24 colored work-in-process materials, 150

packaging materials, 18 intermediate partially assembled

products, and 75 fi nished goods that move from packaging

to U.S. and Canadian distribution centers and then to

retail customers. Material lead times ranged from 7 days

to 8 weeks, production times from 1 to 2 days, review

periods from 7 to 28 days, transportation times from 1 to 7

days, and quality assurance from 1 to 5 days. Demand

forecasts were based on the immediate past 13 weeks of

shipments and a forecast for the future 13 weeks. Among

a number of improvements, P&G’s application of a

multi-echelon inventory approach changed the location of

safety stocks within the supply chain and reduced safety

stock investment for the supply chain by 17% and total

inventory by 5%, while maintaining its 99.5% service level.

The multi-echelon approach at Procter & Gamble reduced

inventory in its beauty division by $100 million, and in one

year alone saved the company $1.5 billion in inventory

costs across all of its supply chains.

Discuss some of the problems a company such as Procter

& Gamble might face in managing inventory across such a

large, complex global supply chain.

 
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