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Negotiating Procter and Gamble
Proctor and Gamble (P&G) faced growth constraints and customer relationship management (CRM) issues with its large retail clients such as Wal-Mart. Disintegrated operational and business level management, lack of strategic direction, and poor CRM were the main issues faced by the company. Unnecessary competition with its own customers and hostile price/margin negotiations were draining out the strategic growth opportunities that a company, as large as P&G could have achieved with an improvement in internal processes and CRM.
Having considered these issues through contemporary research-based business process models, it is recommended that P&G should alter its organizational culture, strategy, and adopt CRM approach. Several alternatives such as those based on collaborative channel management, increased responsiveness to customer concerns, and BMP improvement may be applied by the company after aligning the culture of the company to resonate with the proposed improvements. Vendor managed inventories (VMI), JIT manufacturing and supply chain management (SCM), and forward looking strategic planning are proposed as various options that P&G can adopt to end the stalemate in its internal management and external relationships.
The case study is regarding supplier-retailer partnership between P&G and Wal-Mart during late 1980s. The partnership initiative was led by Tom Muccio, only after P&G was facing sub-par business growth in 1980s. Two new product launches, Duncan Hines ready-to-serve cookies and Citrus Hill Orange Juice, were such market failures that they drained P&G's financial resources. With such lackluster growth and financial performance, the external environment was also getting hostile for profit margins of large suppliers. The retail store chains were increasing their bargaining power vis-a-vis large suppliers. Further, retail-store chains were using 'forward buying' and 'diverting' as organized practices to gain wrongful financial advantage from their supplier's price promotions. The internal environment of organizations was counterproductive for their own growth, specifically in case of P&G that relied on 'military' type organizational structure. Each department within P&G pursued its own narrow (often department specific) goals, thus ignoring the overall customer satisfaction objective. Wal-Mart was P&G's third largest retail customer but the former only managed the relationship through 'sales persons' (Sebenius & Knebel, 2010). This resulted in both large organizations, the supplier (P&G) and the retailer (Wal-Mart) pursuing conflicting and aggressive strategies to cut profit margins of each other, thereby gaining margins for their own organizations. A bureaucratic and unresponsive organizational structure of P&G from within, and pressure of increased market competition as well as ever-increasing bargaining power of retailers had compelled P&G sales teams to adopt hostile selling techniques, often at the expense of their customer's margins or P&G's own long-term growth and relationship with customers. Both P&G and Wal-Mart were hostile towards each other in price-setting and other negotiation matters. Distrustful of each other motives to undermine the other, P&G was getting nowhere around its past performance when the company excelled in context of revenue and profit-margin growth.
Internally, there was a lack of strategic business plan on part of P&G. Each department of the company pursued disintegrated set of goals having conflicting outcome for other departments, and often at the expense of customer satisfaction as well as overall growth. Externally, P&G was pursuing its own financial and sales goals while disregarding customer margins. Result was a disintegrated internal management of the company and distrustful relationship with one of the third-largest customers of P&G.
The problems being faced by the case organizations were multi-layered and got developed over a period of several years. From the culture of organization (P&G) to strategy and performance evaluation, everything was bottom-line oriented. The bottom-line was to increase sales at any cost, may the cost be company's own long-term growth or dissatisfaction of customers. On the outside, P&G was virtually in competition with its own customers. For instance, the company did not rectify the issue that Wal-Mart faces a negative margin of $0.17 for selling each of the P&G branded 'Pampers'. Traditionally operating, the only alternate P&G had been to discontinue the production of this item. This would have decreased business of both the supplier as well as the retailer. As detailed by Corsten and Kumar (2005), suppliers benefit from collaborative relationships with large-scale retailers, no such practice was adopted by P&G despite Wal-Mart being the third largest customer of P&G. Not even a single corporate executive had visited the customer (Wal-Mart) personally; all was managed through sales teams having aggressive sales targets. The practice might have continued but the increasing influence of larger retailers, thus allowing retailer to have greater bargaining power over suppliers, forced companies like P&G to think of alternate ways to spur business growth and change the nature of relationship with retailers. The idea of 'collaborative supply chain' (Simatupang & Sridharan, 2002) could have easily worked for suppliers as well as retailers. Before the application of collaborative efforts, both retailer and supplier were trying to take advantage of each other's negotiating position. Rather than jointly taking advantage of an opportunity by collaborating and working out 'mutually-beneficial' solutions to problems, each viewed the situation in isolation and from one's own perspective. In fact, the case indicates that both P&G and Wal-Mart were highly distrustful of each other as management of both firms had never thought of making use of 'brainpower' and 'technology' to improve supply chain performance, thereby improving each one's business performance (Fisher, 1997). The only alternatives both firms usually practiced to increase profits were to charge higher price or increase sales. Process improvement, performance management, incentive management, and supply chain management could have been the alternate solutions to faltering profit margins and increasing end-customer expectations. The main rationale of collaborative management of supplies, data, and sales records is to increase efficiency of managing overall system performance. System over here refers to supply chain system, customer satisfaction system, and sales management. An efficient use of collaborative management of businesses was practiced by Campbell Soup when it applied Electronic data interchange (EDI) to arrange for continuous replenishment at retail customer outlets (Fisher, 1997). This enabled the firm to decrease inventories of participating retailers from four weeks to two-week's time. By improving lead delivery time through the use of EDI, the company virtually benefited herself as well as the retail outlets.
For collaborative business management and to strike mutually-beneficial deals with each other, suppliers and retailers, and for that matter channel partners in any business, have to unlearn the traditional ways of doing business and look for innovative and 'out-of-the-box' solutions for the problems faced both by the vendor and the customer. Inappropriate performance measures and outdated policies (arising from outdated organizational cultures) should be done away with and replaced with modern technology-based and collaborative business practices. The presence of asymmetric information is also main issue in channel partners and within supplier firm. P&G faced same situation whereby not only the departments of P&G conflicted with each other regarding performance evaluation and bottom line achievement, these departments sent conflicting signals to the customer's end as well. Asymmetric information is defined as "different parties having different states of private information about demand conditions, products, and supply chain operations" (Simatupang & Sridharan, P. 17). Each department within P&G was unaware of plans of other department and further, supplier and retailer both were unaware of each other's motives into the transaction they were in. Exhibit I describes the map of asymmetric information and exhibit II describes how Wal-Mart and P&G may redesign their information sharing. There are many models of collaboration currently used by organizations to reap mutually rewarding outcomes within supply chain management, investor management, and overall business process management (BPM). Just-in-Time (JIT) and Vendor Managed Inventory (VMI) are such models that make use of collaborative business process management. Channel partners collaborate with each other while making use of each other's strengths while mitigating potential weaknesses as well. However, technology adoption and process improvement can only follow a thorough 'cultural audit' done on the part of both the supplier as well as retailer. P&G will need to alter its business practices rooted in the way performance is gauged and the way customer relationship management is practiced. The life-time value of customer has to be realized rather than putting the relationship on seasonal sales targets. An earnest initiative on part of executive management may be required in order to alter the dominant culture of sales only. Process improvement, customer relationship management (CRM), strategic planning might be the appropriate answers to the problem faced by P&G and Wal-Mart.
There are several ways in which both the companies can alter the nature of their relationship. The current way only leads to frustration and hostility on both sides. Starting from a cultural audit, sales-related hostility and 'bottom line oriented' approaches should be replaced with mutual respect and mutual incentives. P&G should redraft its policies, both internally and externally. While internally the company may have to introduce team-based culture and performance evaluation, externally the company will have to carve ingenious ways to redefine nature of relationship with customers, specifically those like…[continue]
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