Page 271 - DCOM206_COST_ACCOUNTING_II

Cost Accounting – II

Notes more than 300 products including major brands like Tide. It has been aggressively
using product lifecycle management software since 2000 for new product
development. The company uses MatrixOne software for mechanising and
automating the knowledge components, and flow components, within the bringing-
a-product-to market phases. In addition, the company is planning to expand its use
of agent-based modelling to actually run important aspects of its operations so that
end-to-end replenishment cycle for products could be shortened drastically.
3. Outbound Logistics (warehousing, shipping, fulfilment): P&G’s largest customer
was Wal-Mart that had a reputation for requiring suppliers to coordinate their
supply chain processes with its powerful just-in-time continuous inventory
replenishment system. A database is used to hold information about work processes
vital for creating, reviewing, approving, and distributing products. This enabled
the company to lower its costs on item such as pigments and chemicals, and to
reduce development time.
4. Sales and Customer Service (sales, order processing, customer support): According
to the case study, Wal-Mart was P&G’s largest customer, accounting for nearly 20
percent of its sales and could be responsible for one-third of P&G global sales by
2010. Wal-Mart capitalised on this position to force P&G to sell wares to them at the
cheapest prices possible. With the coming of a new CEO in 2000, the company began
to find new ways of selling its major brands in more flexible, innovative and cost-
conscious ways. This was apparently because they were not meeting sales targets,
and had to rely on price increase to do so.
Support Activities, which whilst they are not directly involved in production, may increase
effectiveness or efficiency (e.g. human resource management). It is rare for a business to
undertake all primary and support activities.
1. Financial Management (financing, planning, investor relations): The company’s
introduction of agent-based modelling saved them $300 million annually on an
investment less than 1 percent of that amount. This is because it was able to perform
“what-if” analyses on inventory levels, in-store stock outs, and transportation costs
to find out alternate rules to existing ones being analysed, such as ordering and
shipping frequencies or product allocation in distribution centres. It was discovered
that trucks should be often dispatched before fully loaded. Although transportation
costs would be higher using partially loaded trucks because of both driver time and
fuel to deliver fewer goods, the simulation showed that retail store stock outs would
occur less often, thus reducing the amount of lost sales which would make up for the
higher distribution costs.
2. Research and Development (product design, testing, process design, material research):
P&G came to be seen as unimaginative, even stodgy. It seemed weak in developing
new products, and had developed just one product in 15 years. This gave the chance
for traditional competitors and makers of generic versions of their branded products
to grab market share. It established an Intranet called InnovationNet, which was
used to bring people together who are working on similar problems in order to
generate synergy for new product ideas and product development. Using the same
intranet, P&G allows outsiders like research scientists and entrepreneurs to search
for new, innovative products worldwide. Further, it uses a very small information
technology group called Virtual Learning @ Procter and Gamble to develop the
concepts, designs, and packaging for potential new products.
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