Essential Case Facts
Procter and Gamble (P&G) Worldwide is an international manufacturing company that mainly deals in consumer goods (Clark para 1). The company’s main business focus has been enhancing value addition by continuously incorporating changes in its systems, procedures, as well as company policies. In this case study, the company focused on two main categories of services as a way of enhancing its efficiency, including taking part in efficiency improvement activities that covered the entire industry and changing its pricing policy (Clark para 1).
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After World War II, P&G mainly focused on growth through pursuing international expansion, new brand development and marketing, and acquisitions. This increased the product portfolio of the company, which also saw the overall sales increase. The main channels through which P&G products were sold included grocery retailers, mass merchandisers, wholesalers, and club stores. The company continued in its research and development activities with the need for improving its efficiency in operations and service delivery further (Clark para 5).
P&G’s main customer channels suffered from instances of stockouts and the companies attempted to eliminate this by practicing forward buying. However, this affected efficiency as it raised costs as a result of keeping a large inventory. P&G worked in partnership with retailers, wholesalers, and distributors to introduce a more efficient system that relied on electronic data interchange. This allowed P&G to receive data communication from retailers concerning their warehouse stocks.
P&G also extended the value addition focus on its pricing mechanism with a view of lowering pricing complexity and improving the ordering process. The continuous replenishment system (CRP) introduced to eradicate inventory holding enabled the incorporation of value addition for customers, thus reducing the frequency of pricing changes at the company significantly (Clark para 18).
Identification of Major Issues
Error in order quality
Although Electronic Data Interchange (EDI) between P&G and its retailer chains has helped in enhancing efficiency, particularly during the ordering of new stock, there are still possibilities of the system failing to achieve competence. There are chances of data clerks keying in the wrong information where the EDI is entered manually, thus subjecting the entire firm into greater challenges.
For instance, wrong data keyed in concerning stock levels would mean that the retail chain and P&G will not correctly track the order flow as intended. The mix-up could see the retailer run out of stock, while the figures in the computer system would indicate a different scenario. Alternatively, wrong information erroneously entered by a data clerk could see the retail chain continue to incur huge costs owing to the maintenance of a large inventory within the company’s premises. In both scenarios, the idea of achieving efficiency will be defeated and customers will not benefit from the intended added value, yet it is P&G’s main business focus.
The electronic data interchange system requires that retailer companies share their business information with P&G to enable the manufacturer to serve them effectively. Data shared in this regard, however, is very critical and sensitive for the companies (Jun and Shaohan 192). For instance, P&G has to track the product flow in each of the retail chains that have integrated their systems with its main system to ensure stock renewals occur at the opportune time, without creating an instance where retailers experience stock-outs or have to keep inventory in their premises.
The sensitivity of this information could cause retailer chains to abandon this kind of mechanism altogether. Alternatively, the retailer chains may opt to give varied information knowingly to conceal the actual information concerning their performance (Jun and Shaohan 192). Such a move could eradicate the intended benefits of efficiency that P&G targets to achieve by introducing the system and networking with the rest of its consumer retail chains.
Alternative Paths of Action
Automate the entire system
An automated system could be the best remedy to eliminate the chances of wrong details being conveyed through the EDI system. Human beings are prone to error, thus an EDI system that relies on manual operation at one point or the other would still face the possibility of failing to achieve the targeted efficiency altogether. A fully automated system, in this regard, will eliminate the need for having data clerks inputting data at the retail chain end, and instead have the entire process carried out automatically.
The fully automated system can easily be achieved, especially considering the advancement being made in the IT front. The retail chains will have a product database that updates automatically whenever P&G replenishes it with new stock. Equally, a scanner can be used at the point of sale to automatically update the product database of the new changes as the products are purchased from the retail chain.
A fully automated system will increase efficiency since it will eliminate any possibilities of data being erroneous. It will, thus, enable both retailers and P&G to benefit fully from the capabilities of EDI because no instances of stock-outs or inventory being held at the retailer will ever be witnessed.
Computer systems also encounter software failures that could occur at any time without any warning. Such failures could imply that the retailer or P&G fails to track the information promptly as required. If such a failure occurs at a critical time when stock replenishment is needed, no efficiency will be achieved because the retailer might be forced to encounter instances of stock-outs.
Use of data protection mechanisms
The fear of retail chains losing out sensitive information about their performance to their competitors as a result of EDI can be eliminated by adopting data protection mechanisms. The manufacturer can protect all sensitive data by requiring special passwords for such data to be accessed since P&G is the central location where this information is collected. Only a few staff members could be provided with the secret passwords to check such sensitive information.
The data will not be open to all workers at P&G because only a few members, preferably managers, will be provided with secret passwords.
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Computer systems can be compromised by malicious programs and people. Such a compromise might enable other non-authorized personnel to access information, even if it is protected by passwords.
P&G should consider acquiring a fully automated EDI system as opposed to relying on systems that require manual data input.
This is important since it will eliminate any possible chance of erroneous data being relayed within the system. P&G’s main business focus is on value addition to its end consumers, thus a fully automated EDI system will guarantee such an objective because retailers will not encounter any instances of unnecessary stock-outs or stock inventory within their premises.
Research and development
Research and development activities are very important in enabling a business entity to achieve its objectives. R&D enhances the competitiveness of the business because it allows highly effective products and services to be produced. Such products attract the market and revenue.
Connection of the concept
P&G came up with efficient EDI and CPR technologies out of extensive R&D activities. Today P&G has sold the technologies to other business entities and acquired great revenue amounts out of the innovation. P&G has also relied on this technology to achieve its intended target of being efficient in its business operations.
Technology and business
Technological advancement offers a huge capability that, if effectively exploited, could enable business enterprises to register great results in their operations. In the present day and age, it is not possible to succeed in business without fully integrating the essential capabilities of technology.
Connection of the concept
P&G incorporated the capabilities of IT in its business operations in a move that enabled the company to register great success. The company no longer requires adopting other dangerous business strategies, such as acquisition, to achieve growth because its technological prowess is enough to enable it to register the needed growth.
Business enterprises need to integrate their operations to achieve their objectives and goals. A company needs to integrate its operations with those of its suppliers, distributors, and customers to serve its purpose effectively.
Connection of the concept
P&G has managed to attain great results in its operations because of its integration with its suppliers and customers. This allows the company to understand customer needs closely and derive effective answers for them.
Clark, Theodore. Procter & Gamble: Improving Consumer Value through Process Redesign. Boston, MA: Harvard Business School, 1995. Print.
Jun, Minjoon, and Shaohan Cai. “Key Obstacles to EDI Success: From the US Small Manufacturing Companies’ Perspective.” Industrial Management + Data Systems 103.3 (2003): 192-203. Print.