This article was originally published in Supply Chain Management Review, April 1, 2004
HOW GILLETTE CLEANED UP
ITS SUPPLY CHAIN
In 2002 Gillette knew it had a problem. Service levels were low, supply
management was spotty, and customers were angry. The solution:
reengineer the organization based on the premise that the value chain
begins and ends at the retailer’s shelf. The results to date have been
impressive – customer service levels up by 10 percent, inventories down
by 25 percent, costs cut by 3 percent. Here’s the inside story of a
remarkable comeback.
By Mike Duffy, vice president of the North American Value Chain for The Gilette Co.
It was not a comfortable meeting. In fact,
it started out more like a confessional.
Gathered at the 2002 conference of
the National Association of Chain Drug
Stores, our senior managers were face to
face with many of our most important
customers. The executives were admitting
that Gillette had failed to meet its goals
for effective customer service. In personal
care products – deodorants and shave preparations – our performance had been
especially awful. Gillette managers conceded that customer service levels in personal care lines were in the low 80-percent
range despite earlier expectations that
overall service would be at 98 percent by
the first quarter of 2002. The big admission: While Gillette’s products were constantly in demand, the company could
not reliably ship to its customers’ requirements.
Our drug-store customers then heard
that Gillette was applying plenty of effort
to deal with their disappointments. They
learned that our chairman, Jim Kilts, had
named the issue as his “number-one frustration” and had insisted on urgent fixes.
Gillette’s president, Ed DeGraan, was now
directly responsible for rapid improvements. Other management changes put
more attention on customers’ concerns.
And we’d hired a top-tier consultancy to
help rebuild our processes and capabilities.
We also told our customers that we
had already launched an integrated improvement initiative – called our “Func10
DILForientering / oktober 2004 / årgang 41
tional Excellence” program – with major
initiatives addressing planning, manufacturing, order management, and
deployment/delivery. This program had
been created with significant input from
four of our largest customers in North
America and Europe.
The customer meeting ended with familiar commitments to making progress
throughout 2002; our managers pledged
to provide regular communication on our
progress. “We know you’ve heard this all
before,” they said. “We know it’s time for
deeds, not words.” But given our past performance, it’s unlikely that many customers left the room convinced that Gillette was about to become a world-class
supplier.
However, that is exactly what happened over the next 18 months. Our North
America operations increased customerservice fill rates by 10 percent, slashed inventory by 25 percent, and reduced cost
by 3 percent. Equally important, we revitalized our value-chain organization and
further strengthened our relationships
with retail partners. In fact, we have won
plaudits from several leading customers –
including the “vendor of the year” award
from Wal-Mart – and found many of our
new processes being emulated by retailers.
The tremendous progress made in
such a short time has transformed our
commercial organization. Sales calls can
now focus on building the business rather
than fending off concerns about custo-
mer service. There have been significant
shifts in the company’s mindset that will
serve Gillette well from now on: a new
view that the value chain starts and ends
at the retailer’s shelf and an emphasis on
continuous improvement. (See sidebar on
page 16 “Putting Shelf Before Self.”)
The overhaul did not happen by implementing sophisticated software. It
came from a focus on process and people.
Specifically, it meant spotlighting four
key areas: (1) minimizing complexity, (2)
improving demand planning, (3) improving product supply, and (4) implementing a new value-chain organization. This
is how it happened.
THE INVENTORY DILEMMA
The Gillette Company sells more than
just shaving gear. Famously known for its
Mach3 and Venus razors, Gillette has a
broad portfolio of products, including
Right Guard mens’ toiletries, Braun Appliances, the Syncro shaver, ThermoScan,
Duracell batteries, and Oral B dental care
products. Our brands are among the
strongest in the world – and they’re getting stronger. In Business Week’s 2003
survey of global brands, Gillette moved
up to 16th place in the global rankings
and Duracell pegged 71.
Gillette’s 2003 sales revenues were
about $9.25 billion, with 42 percent
coming from blades and razors, 22 percent from Duracell, 13 percent Braun, 14
percent Oral Care, and 9 percent Personal
Care. Our profit from operations was
about $2 billion, with more than twothirds of that from blades and razors, 16
percent from Duracell, and 10 percent
from Oral Care. The products are distributed by giant retailers such as Wal-Mart,
Walgreens, CVS, Costco, and Target. We
also sell to household-name chains such
as Best Buy, Staples, Toys”R”Us, Lowe’s,
Home Depot, and Bed, Bath and Beyond.
But our brand power and the popularity of our products masked a hard reality.
We just could not get product to the
channel efficiently. In the first quarter of
2002, customer service was at 90 percent,
as defined by first-time fill rate. Putting it
in more emotional terms, customers were
screaming because, on average, 10 percent of their orders were not arriving.
Inside Gillette, there were constant
battles. The sales guys felt like the product wasn’t there. They were frustrated
because they had a hard time selling in
new products (and new products are our
lance sheet – less working capital in the
form of inventory – and wanted us to generate more free cash flow.
lifeline) because all that the buyers
wanted to do was talk about the current
product orders we could not fill. The supply chain guys felt like the inventory was
there but they couldn’t explain why the
product was not getting shipped. When
we dug into it, both sides were right. Often – in at least one out of three cases – we
did have product available, but we weren’t shipping it. Customers were ordering discontinued product instead of
newer versions; pricing errors were preventing orders from going through.
Those were just some of the pain points
we were experiencing.
The inclination was always to add inventory to protect service. But it was clear
that the old axiom “throw inventory at a
service problem” did not hold true at Gillette. It was frustrating that our inventory
levels – days of inventory on hand – were
among the highest in our industry. We
benchmarked against competitors such as
Procter & Gamble, Colgate, and Unilever.
We looked at metrics such as finished
goods and work in process (WIP) inventory and found our competitors turning
their inventory much faster than we did –
typically at least 50 percent faster.
Those truths were quite evident to
Wall Street. As a longtime public
company, we are covered by many financial analysts, and they understood our
problems very well. They could see clearly
that our working capital as a percentage of
sales was around 20 percent – not exactly
the best way to utilize free cash. Investors
were expecting us to have a stronger ba-
opportunity. Over the course of about a
month, we surveyed both internal and
external customers on quantitative metrics such as customer service, inventory,
and cost. (Exhibit 1 gives the benchmarking framework.)
Internally, we polled key staff in sales,
marketing, and manufacturing. The feedback was both detailed and blunt. Here
are three samples of how Gillette’s own
managers graded its supply chain performance:
11
DILForientering / oktober 2004 / årgang 41
GAUGING THE PROBLEM
Spurred on by continuing customer complaints, our Functional Excellence program set out to reverse the company’s
paradoxical “poor service, high inventory” situation. The program was spearheaded by a special project team whose
objective and charter had been agreed to
by the senior vice president of global supply chain management, Mike Cowhig,
and by Joe Dooley, our president of North
America Commercial Operations. As Gillette’s director of global supply chain at
that time, I led the project with assistance
from McKinsey consultants. Ed DeGraan,
Gillette’s president, was the chief project
sponsor.
Step one was to benchmark against
our competitors to identify areas of early



First ship fill rates (FSFR): “None of
the business units is consistently
achieving better than 95-percent
FSFR. Key customers frequently receive less than 95-percent FSFR from
at least one business unit. This issue is
the driver to many other issues. In a
recent customer service benchmark
study based on 2000 data, Gillette’s
fill rates were 35th out of 36 respondents.” Grade: Poor.
Order fulfillment leadtime: “Gillette’s
order cycle time is unacceptable.
Benchmark comparison has
Gillette...tied for fourth worst versus
36 consumer-packaged-goods companies.” Grade: Poor to average.
Expediting rush orders: “Gillette is
quite willing to expedite orders given
our fill rates, and often does expedite
orders. Cost is often a secondary consideration.” Grade: Average.
Few comments ranked our performance
higher than “average“ in 14 categories.
Overall, the results showed that while we
had generally done a good job optimizing
within the four walls of our traditional
supply chain functions – demand planning, supply planning, order management, and warehousing – our “end-toend“ process, from factory palletizer to
the customer‘s shelves, was poor.
If that first step was humbling, the
next step was dismaying. It was time to
communicate the outline of the program
to our best customers. In the second and
third quarters of 2002, our leading sales
teams and I visited our top 10 accounts to
do in-depth reviews of our current performance, their expectations, and our plan.
Needless to say, they had little time for
our plan (“we’ve heard it all before”), and
they spent most of the meetings talking
about the ongoing problems.
To understand the contributors to
poor performance, we scrutinized all
KONFERENCE
Vær opmærksom på at du ikke blot har
mulighed for at læse om Gilettes erfaringer med at forbedre sin forsyningskæde i nærværende artikel, men også
for at høre de mere specifikke detaljer
herom på årets planlægningskonference, der finder sted den 25. november i København. Konferencen vil blive
indledt med en forfriskende præsentation fra Heasun Choung, Operational
Forecast Manager og Helle S. Breinholt,
Demand & Inventory Planning Manager fra Gillette, som vil tage os igennem den forandringsproces, virksomheden har gennemgået de sidste fire
år. Fra at være en organisation med en
standard forsyningskæde har Gillette i
dag udviklet sig til en decideret værdikæde-organisation, hvor fokus ligger
på kunden, og den overordnede strategi og mission er integreret med den
kommercielle del af forretningen. Gillette vil endvidere give et nordisk perspektiv på, hvordan efterspørgslen i
markedet i dag integreres og matches
med udbudet af varer, hvilket har givet
store omkostningsbesparelser i hele organisationen. Desuden kan du høre
indlæg fra DLG, Lauritz Knudsen,
ECCO og Novozymes.
Læs hele programmet på www.dilf.dk,
hvor du også kan tilmelde dig.
functions involved in the planning and
execution cycle to better define their interdependencies and linkages. The goal
was simple: improve customer service
while reducing inventory and cost.
End-to-end process mapping quickly
revealed big disconnects among key processes. Multiple shipments were routinely
required to complete an order. Up to 20
percent of all cases ordered shipped from
an alternate distribution center (DC), making late deliveries much more likely.
There was little or no close monitoring of
delivery performance to the buyers’ requested delivery dates. Supply risks were
frequently not identified, and when they
were, the risks were not fully appreciated.
As we dug into the data, several process
flaws became clear:
1.
Timing was not synchronized. We
had planning cycles that were not
aligned with one another. For
example, the demand plan for the following month was often finalized one
week prior to the month’s starting,
even though leadtimes for deploying
product to the distribution centers
were, on average, two weeks. This misalignment often led to customer-service problems, especially for our U.S.
West Coast customers. We had no
process for communicating changes
to the demand plan during any
month, even though actual customer
orders, promotional plan changes,
and other factors may have warranted
it. The factories were given a schedule
at the beginning of the month; they
simply produced to it.
2. Definitions did not match. Functional areas often did not understand
and measure against their internal
customer’s requirements. They defined and tracked measures on how
they performed compared to their
span of control, not in relation to
how the entire process performed. For
example, product was often arriving
late at the DCs for final shipment to
our customers. Analyzing the data
and researching the root cause, we
found that distribution defined a
shipment as “on-time” if its actual
transit time was within the standard
time provided by our carriers. On the
other hand, planning was expecting
the product to arrive by a particular
date. This date was driven by a standard cycle time, not solely by transit
time. This disconnect led to product
arriving late (as defined by planning),
driving inventory levels higher and,
tations and best-in-class characteristics,
and determined our desired level of performance. A crucial part of the process
was to map the entire fulfillment process,
from earliest forecast through order
placement to delivery to the customers’
actual shelves. We effectively “stapled
ourselves to an order,” sketching out the
necessary key performance indicators
(KPIs) that we could later refine and use
to monitor and control the processes.
Inevitably, the finger pointing continued. Everyone wanted to climb back in
their holes and blame each other. It was
suppressed, of course, whenever it was
necessary to present to the project’s steering committee, chaired by Ed DeGraan.
To combat the finger-pointing, it was important to have members of both the demand side and supply side on the project
team. But the best way to break it down,
we found, was to focus on the data itself.
The shift in focus soon began to work.
in some cases, hurting customer service.
3. Accountability was limited. The best
example here is around the ownership of customer-service metrics. Everyone complained about our poor service levels, yet nobody owned the metric. Different functions were responsible for “their piece” and measured
their individual performance. However, no one owned the “end-to-end,”
leading to finger pointing and turfprotecting.
There was little disagreement that out-ofsync data led to pricing errors, ordering
errors, and much more. And there was no
argument that in cases where data were
inadequate or nonexistent, better data
had to be developed.
With the fundamental data gathered,
we ran a gap analysis to prioritize the program’s initiatives. The analysis helped us
identify 11 key levers as core elements to
our turnaround program. These levers
were easy to bundle into our four initiatives of minimizing complexity, improving
demand planning, improving product
supply, and implementing a new organization. (Exhibit 2 lists the key levers under each of these areas.)
With the early diagnostics complete, we
synthesized the results to assess current
performance, identified customer expec-
Service/reliability
Activity
Expectation
1. Poor
3. Avarage
5. World Class
Gillette Score
Benchmark
Companies
Measurement
5
Gillette sporadically
provides/monitors
joint scorecard
Gilette regulary
provides/monitors
joint scorecard on
exception basis,
collaborates to
identify/implement
improvement
opportunities
Gillette regulary
provides/monitors
joint scorecard,
proactively
recommends
opportunities to
improve service/
reduce cost
1
Procter & Gamble
Lever
Elida
L’Oreal
First Ship Fill Rate
5
Gillette’s average fill
rate < 95%
Gillette has an average
fill rate between 95%
and 98%
Gillette has an average
fill rate greater than
98%
1
Colgate Palmolive
Lever
L’Oreal
5
Gillette’s average time
elapsed from order
placement to product
delivery is longer than
our requirements
Gillette’s average time
elapsed from order
placement to product
delivery meets our
requirements
Gillette’s average time
elapsed from order
placement to product
delivery exceeds our
requirements
1
Kellogg’s
Definition: Number of
Units Shipped Against
Number of Units
Ordered on First
Delivery Against That
Order
Order Fulfilment
Leadtime
Definition: Lead-time
From Receipt Of Order
to Delivery Of Order
Exhibit 1. Sample of Benchmark Framework
12
DILForientering / oktober 2004 / årgang 41
Minimize Complexity
Our detailed analysis revealed that poor
processes were prevalent up and down
Gillette’s supply chain. “Band-Aids” and
quick fixes had become institutionalized.
Further, SKUs had been allowed to proliferate wildly. For instance, there were too
many customer-specific SKUs (always a
challenge) and a wide array of SKUs specific to the Canadian marketplace. Looking at the situation dispassionately, we
could see that poor process discipline
combined with an inordinate amount of
complexity was a disaster waiting to happen.
The solution was obvious. We launched a comprehensive program to eliminate thousands of SKUs and manage them
properly. We built a new reporting tool
that each month could pull data from our
SAP enterprise resource planning software
and automatically flag SKUs that failed to
clear the performance hurdles that we set.
Under-performing SKUs were reviewed by
the business team, and at least 30 percent
have been eliminated. There had been
quite a few “dead” SKUs in the system. We
have harmonized most of the Canadian
SKUs with their U.S. equivalents. In many
cases, it was as simple as making sure that
Canadian and U.S. products used the
same packaging graphics.
The initiative brought immediate benefits. It has improved the focus of the
demand planners, who have fewer SKUs
to forecast; made production processes
more flexible because there are fewer
changeovers; and given us faster inventory turns. Our finished goods inventory
turns have improved by 25 percent in the
last three years, from around 4.8 turns to
just under six.
The simplification extended to the order-to-delivery process. Many processes
Improving ValueChain Performance
 Increase Service
 Reduce Inventory
 Lower Cost
mand planners. Previously they had reported to the general managers in the sales function; but now they reported to a
dedicated director of demand planning, a
new position. The result is that we get a
less filtered view of the demand signals.
The next area concerned SKU forecasting of open-stock items – the regularturn items that are constantly replenished on the shelves. We had Manugistics
software in place, but we weren’t leveraging its full capabilities to model the
transaction history and to incorporate
business intelligence. We brought in our
IT experts – they’d been part of the project planning from the get-go – to help us
refine the tool. At the same time, we trained our planners on statistical modeling
and tool usage so we could take full advantage of the software’s capabilities.
On another front, we hadn’t been
using account-level forecasts to derive our
demand plan. With top-down planning,
Improve Demand Planning
there was no need. Information from our
customers was readily available, but it was
unusable because there was no process to
incorporate it. For example, some key accounts could generate order forecasts, but
we could not determine if that information was better than our own internally
generated number, and we missed the opportunity to discuss with the customer
why the numbers were different. Now
we’re partnering with some of our key accounts on collaborative order forecasts,
not only for open stock and promotional
forecasts but also for any activity that
might affect consumer demand.
Our next focus area was promotions.
Historically, we had concentrated on the
dollar accuracy of forecasts rather than
the unit accuracy. As a result, we had
plenty of shipment inaccuracies; the dollar figure may have been right but the actual shipments failed to meet customer
requirements. We now work closely with
sales to ensure that dollar forecasts are
translated into unit forecasts and that all
parties own and are held accountable for
that final expectation.
Decomposing the overall demand
plan down to finer buckets such as open
stock and promotions has enabled focused improvement efforts (see Exhibit 3).
While variability in the supply chain is
never good, its impact is dampened if it
can be predicted. Segmenting the forecast
has allowed us to accommodate spikes in
demand that we know will occur due to
factors such as seasonality and promotions.
Concurrently, we had to overhaul our demand-planning processes. Gillette did
have such processes, but they were not effective. We had a top-down approach to
planning – an approach that was focused
on a financial number rather than a unit
planning number and reflected a goal for
what we wanted to sell, not a clear-eyed
view of how many units we really could
sell. In essence, it’s an approach that encourages employees to think about what
management “wants me to ship” instead
of focusing on what customers really
might buy.
So our first area of focus was on unhooking the financial commitment from
the demand plan. That enabled us to generate an unbiased prediction of true
customer demand or “what is most likely
to happen.” We also transplanted the de-
Minimize
Complexity
Order/Shipment Volatility
SKU Rationalization
Promotional Complexity
Reduction
Improve DemandPlanning Processes
Open Stock and
Promotion Planning
Long-Term and ShortTerm Planning processes
Improve SupplyPlanning Processes
Manufacturing Flexibility
Order-To-Delivery
Leadtime
Inventory Planning
Establish Optimal
Support Systems
Exhibit 2. The Diagnostic Identified 11 Key Levers
13
had become unnecessarily complex
because Band-Aid solutions had been applied to many customer service issues,
leading to inevitable service breakdowns.
One example: Gillette regularly shipped
to customers from any one of our four distribution centers. We may have been deploying inventory to a DC based on a
forecast, but we were really shipping from
whichever DC had inventory. In 2002,
fully 11 percent of our shipments originated from an “alternate DC.” That caused inventory levels to balloon unexpectedly in some locations and shrink in
others, making forecasts inaccurate and
causing huge inventory imbalances
throughout the distribution network. Today, the alternate DC number is down to
1 percent. This decrease not only helps us
plan more accurately but also gives our
customers more predictable cycle times
for their deliveries.
DILForientering / oktober 2004 / årgang 41
Organization
Performance Management
IT Systems
Improve Product Supply
We concentrated initially on manufacturing flexibility. To illustrate, we had some
SKUs that our factories would produce
once every eight weeks. Given the product categories we compete in, we needed
more flexibility to better respond to the
marketplace. Now we’ve increased the
run frequency of most SKUs, better
matching supply-side capabilities with
the needs of the business.
Similarly, we’ve improved the inventory-planning process. Historically, our
inventory planners would use their experience to set levels of SKU safety stock.
They would set safety-stock levels at the
product-family level, so nuances at the
SKU level – forecast accuracy, demand volatility, and manufacturing-run frequency, for instance – weren’t taken into
account. The planners were typically giving everybody 35 days’ inventory
instead of really understanding the SKU
requirements. Additionally, inventory levels were only reviewed semi-annually.
Now we’re continually looking at ways to
improve every component of our inventory by examining the key improvement
drivers, as depicted in Exhibit 4.
With deeper analysis, we were able to
match customer needs with the need to
minimize stocks of finished goods. Improved supply planning allows us to set
safety-stock levels more appropriately. In
addition, focused training and education
has helped our planners become more
scientific in how they establish safetystock levels. Inventory is used “intelligently” to buffer the variability of demand against the variability of supply.
Where we have predictable demand and
predictable supply, we can trim back inventory levels. In some cases, we are finetuning just-in-time deliveries and vendormanaged-inventory shipment schedules.
If both demand and supply are unpredictable, we compensate by increasing inventory.
Additionally, we have done much to
clean up system data. Previously, orders
would get hung up in SAP because product or documentation definitions were
not synchronized. It was quite common
for customers to order discontinued product and for the system to kick out error
messages or messages requesting new orders. We’ve really worked hard to collaborate with our customers on uniform data.
Gillette and our customers. (See Exhibit
5.)
The old supply chain group had been
responsible for inventory planning,
freight, and warehousing. The sales organization was responsible for demand
planning, promotions management, and
customer service – with each of those
functions reporting to a different vice
president.
The new value-chain alignment
brought together contributors from both
sides under one management team.
Single-point accountability for customer
service, inventory, and cost to serve presented a huge opportunity. It meant colocating staff, focusing everyone on
stocking customers’ shelves efficiently,
and regularly reviewing our performance.
I implemented a weekly service review
meeting with representatives from each
group looking at the previous week’s successes and failures. (The first meeting la-
Restructure the Supply Chain
Organization
sted three hours; people were not prepared, and there was still plenty of blame
being passed around. Now the meetings
are down to half an hour maximum, and
there’s no finger-pointing any more.) By
moving to an integrated organization, it
was our belief that we would:
The initiatives described so far would not
have been fully effective had we done
nothing to align key roles with the new
processes. Essentially, we had to migrate
from a segmented supply chain structure
to an integrated value-chain organization. The redesigned organization allows
us to own all the levers required for improving performance. We can make investments and process changes that can
deliver substantial benefits to both
1.
Get a more complete understanding
of the end-to-end process. As referenced earlier, we had functional experts
not value-chain experts. While everyone was working hard against his or
����������
���
�����������������
������������������������
��������
���
���
���
��
�
�
�
�
�
�
�
�
�
��������
���
���
���
�������
���
����������
���
���
���
���
���
���
���
��
�
�
�
�
�
�
�
�
�
��
�
�
���
��
�
�
�
�
�
�
�
�
�
�
�
�
�
�
�
������������
���
���
���
�����
���
���
��
���
���
���
��
Exhibit 3. Example of Segmenting Demand
14
DILForientering / oktober 2004 / årgang 41
�
�
�
�
�
�
�
�
�
�
�
Component of Inventory
100
Key Drivers to Inventory Improvement
Prebuild

New Product Launches
Raw Material/WIP

Vendor flexibility/Consignment
Excess

Not Perfect Plan/Execution
Slow/Non-moving

Phase In/Phase Out, Batch Sizes
Safety Stock

Forecast Accuracy, Replenishment Leadtime
Cycle Stock

Manufacturing Flexibility
In-Transit

Sourcing Locations/DC Network
Exhibit 4. Spotting Inventory Opportunities
her objectives, they were not always
working towards the same goal. A
single organization allows objectives
to be aligned, and it ensures that the
process flow from one group to
another is better defined and
synchronized.
2. Have better and faster communications across all functions of the value
They had a presence on the program’s
steering committee, and they provided
vital guidance and counsel for both managers and employees.
For example, when we restructured
the reporting lines for our demand planners, HR actively worked with us to
change the planners’ objectives. Since the
planners would no longer be working for
chain. Like many companies, we
struggled with the speed at which we
turned data into knowledge. With a
single organization focused on the
customer, we are able to move information across the value chain faster,
accelerating the decision-making process and improving the odds of continued success with our customer.
3. Gain a more coordinated understanding of the processes within our
customer supply chain. Historically,
we had not done a good job of understanding customers’ supply chains.
Mistakenly, we believed our job was
done once we shipped the product.
Our new value-chain orientation
means we now partner with our
customers to understand how our
product moves through their system.
That way, we can readily spot and eliminate redundancies and inefficiencies in the entire system – from source
to shelf.
4. Provide one voice to the customer for
all value-chain issues. We had many
vice presidents responsible for various
aspects of the value chain, but no one
accountable end to end. Resolving
service problems became exercises in
frustration for internal and external
customers alike. With a single point
of accountability, customers now
have “one-stop shopping” for issue
resolution.
the sales organization and therefore
would not be eligible for sales bonuses,
HR helped us redesign their compensation packages to ensure that they came
out even. Now the planners are compensated based on their contributions to
customer service, inventory levels, and
cost containment. It helps shift the focus
from “this year’s bonus” to a longer-term
view centered on the customer and on
continuous improvement.
Throughout, we had the invaluable input
of Gillette’s human-resources group.
15
DILForientering / oktober 2004 / årgang 41
GAUGING THE IMPACT
How have we done? Gillette is effectively
a different company; all the metrics underlying the success of our organization
have improved. Forecast accuracy, measured at the monthly item level in the
DCs, climbed from 46 percent in January
2003 to 71 percent in November of last
year. Fill rates increased from around 90
percent in 2003’s first quarter to 98 per-
��������
�������
cent at the end of the year. Inventory levels are down substantially in the last year;
in addition to expanding our customer
service vocabulary, we now include ontime delivery and order-to-delivery cycle
times as part of our daily KPI review process.
There’s been good recognition of the
gains to date – both internally and externally. Gillette’s chairman, Jim Kilts, has
made note of the improved customer-service activity, and last summer, the head
of our personal-care products operation
gave the value-chain organization an
award for the improvements his unit had
seen. Outside, the free cash flow now
being generated has met with investors’
approval (working capital that recently
ran around 20 percent of sales is now in
the single digits), and Wall Street analysts
have noted the improvements in days sales outstanding and inventory on hand.
At least one investment bank has since
upped its rating of Gillette’s stock.
The bigger win has been the revitalization of the organization. Everyone not
only is focused on delivering value to the
customer but also has become re-engaged
with each other. When issues arise, we resolve them with the root-cause analysis
and fact-based decisions. By focusing on
the data, we’ve taken emotion out of decision making, allowing process fixes to
be implemented much more quickly.
But it’s the direct customer feedback
that has been most gratifying for our
team. Yes, we did clinch the “Vendor of
the Year” award from Wal-Mart last
year—a major boost given Wal-Mart’s
well-deserved reputation for toughness.
In many cases, though, we derived more
satisfaction from smaller signals that we
were on the right track. One brand-name
retailer was delighted that we asked for
their candid feedback on our supply
�����������������������
- Case Fill Rate
- On-Time Delivery
- Perfect Order/Invoice
�����
�����
���������
- Investment $
- Coverage
- SKUs
Exhibit 5. All Key Levers Under One Management Point
���������������
- Warehousing
- Transportation
- Systems/Data
- Continuous Process Improvement
chain performance; no other vendors had
ever asked them for that. Another asked
for much more detail on the process so
they could assemble it into a training manual for use by their other suppliers. Still
another was amazed at the levels of detail
that we explored. When we stapled ourselves to an order from that customer, we
had used a total of 71 Post-It notes to
show them what the transaction looked
like. That level of detail was part of what
made Functional Excellence so successful.
KEY COMPONENTS OF SUCCESS
Gillette’s lackluster supply chain performance was by no means unusual, and
our remedies were not particularly innovative. In fact, our transformation story
could be that of any company facing similar pressures and armed with similar resources.
We did not overhaul our software
platforms or spend lavishly to push
Process first, organization second.
Many companies rush into an organizational change without fully understanding
the underlying processes that need fixing.
At Gillette, we focused on detailing the
processes involved in the entire planning
and execution cycle, identifying the gaps,
and systematically closing them. Once
the processes were defined, we implemented the organizational structure required to sustain the improvements.
The devil’s in the detail – get into
them. Here’s an example: We previously
reported customer-service metrics two
weeks after the month’s close. This gave
us little opportunity to research the causes of failure. We had volumes of reports
listing last month’s KPIs, but little detail
on the causes of failure; in essence, we
were data-rich but information-poor.
Now we report customer service metrics,
gauged by distribution center and by
business unit, every day.
through the necessary changes. Instead,
we took advantage of a healthy climate
for change, carried out exhaustive analyses, gave project leaders authority as well
as accountability, and focused foremost
on what would improve value to the
customer while minimizing our cost of
working capital. We believe the following
elements were crucial: Senior management support and buy-in. It seems obvious, but without the support of senior
management, organizational change is
rarely possible and never sustainable. At
Gillette, senior management gave us the
time and, more importantly, the resources required to make the changes.
Additionally, we have a cross-functional team that meets daily to research the
previous day’s service failures. The team
does not assign blame or point fingers but
identifies both the issues leading to the
service gap and the necessary processes
required to eliminate them.
Align the organization around objectives. The best way to get an organization
focused on a common goal is to share objectives. Co-location of people certainly
helps enable communication. But if you
really want to accelerate the “ability to get
things done,” have them share objectives.
Was our Functional Excellence transformation easy? Of course not. Nor is it
Category
Management
Item/Data
Set-Up and
Maintenance
Demand
Planning
On-Shelf
Availability
Supply
Planning
In-Store
Logistics
Freight and
Warehousing
Exhibit 6. The Value Chain Cycle
16
DILForientering / oktober 2004 / årgang 41
Order/Revenue
Management
by any means complete. With a new continuous-improvement approach and the
KPIs to back it up, we have a long list of
detailed projects. Already we’re working
toward using first-time on-time delivery
as a core performance metric.
I firmly believe that what Gillette has
done, others can and should do. It’s no
overnight fix – you’ll have to dig in for a
couple of years at least and prepare for
plenty of setbacks.
But the rewards are immeasurable. /
PUTTING SHELF BEFORE SELF
“Out of stock” status is a huge industry
problem. If we don’t partner with our
customers to help solve it, we’re leaving money on the table. That’s why
one of the goals of Gillette’s new value-chain organization was to change
the way our employees thought about
our supply chain activities.
Historically, the supply chain is depicted as a linear process flowing from
left to right – from source to retail
shelf. Our view is that the value chain
starts and ends at the shelf. It is a circular process as shown in Exhibit 6, not a
sequential flow. The rationale is simple
– if our products are not on the shelf
when the consumer wants them, all
the work leading to that point is wasted. To instill that fresh mindset, we
asked everyone in the value-chain organization to imagine tracking our products from a manufacturing plant to a
customer’s shelves, thinking about
every step along the way and thinking
of potential improvements.
That mindset requires a collaborative
approach with our retailers to optimize
the management of the supply chain.
Partnering with our customers to understand how our product moves
through their supply chains, from distribution center to shelf, has been critical learning process and has enabled
us to rethink many of our traditional
approaches. Now our staff understands
and tracks out-of-stock rates for key
customers. They put themselves in specific customers’ shoes. In one recent
example, we redesigned the markings
on a carton to give it more prominence
and a clearer identity in the stockrooms
of the customer’s stores.