1. “Cost to Serve” Trade Terms How Terms and Conditions for logistic efficiency are being implemented
P&G Case Study
Francesco Messana
Customer Logistics Manager
AIM Workshop
Brussels,Oct 4th 2006

2. Agenda Personal introduction/my role in TT “Cost to serve” definition
P&G background on “cost to serve”
Current approach
Collaboration and reaction from CBD/Retailers

3. Cost to Serve definition What we call Cost to Serve
SALES –
COST to MAKE –
COST to SERVE =
PROFIT
Logistic/Administrative/
Distribution operations
(hence TT concentrated on this tasks)

4. P&G Background: TT implemented in 1999
WHAT WORKED
At that time, it served a purpose (communication/clarity with customers) and set high standards
Started Customer education
Offered flexibility (customer appreciated)
Supply Value “honesty” concept introduced

5. P&G Background: TT implemented in 1999
WHAT DID NOT WORK
Not a truly multifunctional approach
Went too far (cherry picking, not sustainable)
Lots of local adaptations, few markets reached full implementation
Did not always respond to evolving business needs

6. Current approach Used integration with Gillette as a catalyst
From Cost to Serve definition, focused on the 3 areas (Log/Admin/Distr): bubble chart analysis (cost/value/processes/behaviours etc...) 1 2 3 4 5 6
ORDER
GENERATION
INFORMATION
ORDER
ACQUISITION
ORDER
PROCESSING
SHIPMENT
EXECUTION
& BILLING
DELIVERY
EXECUTION
FINANCIAL
TRANSACTIONS
Information needed to enable the OSB process
Receiving and or creation of orders
From order receipt to transmission of the order to the warehouse
Orders are scheduled, loaded, shipped, and billed
Physical movement of product to customers
Match customer payments with invoices. Identify and resolve discrepancies

7. Design option for brackets

8. So what do we incentive?
Concepts are mostly aligned with previous version of TT (also shared in Dec 2004 – AIM workshop). Some adds on from CS/L surveys with customers
Approach is different:
Multifunctional/One Package (e.g.: inventory management): design and selling
Cost/Value creation rather than transfer (value relationship vs negotiations on activities not cost justified)
More detailed analysis in the 3 relevant areas

9. An example: Costs - Order Size Relationship
< 0.5 Pallet % >> + 5% >> + 20%
1 Pallet - 3 Pallets Base
> 4 Pallets - 1% > %
Cost to serve as % of combined
P&G/Gillette combined order value

10. Collaboration/reactions from CBD and Retailers
ONE package with CBD (multifunctional alignment): lead to sustainability
Design included feedback from customers
Cost to serve vs cherry picking: avoid cost explosion
Alignment with customers on cost/value sharing (see pallet chart)

11. Q&A