CINCINNATI -- Market observers say Procter & Gamble's new Streamlined Logistics plan will give it, at best, a temporary advantage over its competitors by squeezing more efficiency out of continuous replenishment.
But its action has raised the competitive stakes nonetheless, spurring competitors to catch up through development of similar systems individually or in collaboration with their broker networks.
"I think it's exactly where the industry is going," said Chris Hoyt, managing director of Reach Marketing West in Manhattan Beach, Calif., noting that P&G's plan partly fulfills the efficient distribution objective of Efficient Consumer Response by consolidating deliveries across the company's varied product lines.
"It may give them a cost advantage, which is what their objective is. That's going to put them in a better competitive cluster -- more efficient for them, more efficient for the supermarket operator," he continued.
Calling it an "excellent working model of continuous replenishment," Burt Flickinger 3rd, a management consultant with A.T. Kearney in New York, estimated that P&G would be able to carve at least 1% from its total system cost with streamlined logistics.
The plan simplifies pricing between categories, standardizes ordering requirements and aims to reduce invoice and system errors, thus saving customers money. It incorporates new payment terms -- a 2% discount for payments within nine days, net due 30 days -- across all P&G categories except cosmetics and fragrances.
Jeffrey Hill, managing director of the Meridian Consulting Group in Westport, Conn., said he believes P&G will continue to be progressive and proactive. "They are now offering mixed shipments, which simply realizes the flexibility of the marketplace. It offers retail flexibility and is another form of competitive pricing," he said.
As several observers noted, P&G is not alone in recognizing the advantage of maintaining full-truckload deliveries in a continuous replenishment program environment. Several smaller manufacturers are close to introducing similar concepts working through food brokers. (See related story, Page 1.)
Calling the plan a "reallocation of promotion dollars," Ken Harris of Cannondale Associates said supermarkets have a favorable view of it because it will allow them to turn products more often before receiving their discounts.
Although this move could be "tough medicine" for the larger voluntary and cooperative wholesalers, Flickinger agreed most retailers would likely benefit.
"From a continuous replenishment standpoint, it's going to make it easier for the retailer to order smaller quantities of the product. From a profitability standpoint, the people who stand to gain the most from this are supermarket chains, mass merchandisers and convenience stores who typically do not move lots of cases," he said.
Said Hoyt of Reach Marketing, "[P&G's] philosophy is everyday low cost. They're going to enforce that operating strategy. Will it push Lever and Colgate to examine the same things, too? Certainly, to continue to be effective competitors, they need to consider those things." Harris said other manufacturers are making plans to match P&G's efforts. "P&G is six months ahead of the pack. It isn't as if P&G is going to have a leg up on manufacturers. It's just that they're going on a much more major scale than the others."