Page 86 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Unit 4: Demand Planning and Forecasting

Gillette increased the equity stake in ISPL from 24 percent to 40 percent in 1989 and further Notes
to 51 percent in 1993. By 2002, Gillette had a stake of 75 percent in GIL. During these two
decades, Gillette followed inorganic growth by acquiring domestic companies in oral
care, battery, blades and razors and stationery business.
In 2003, the total razor blade market in India was ` 6 billion by value and 3.8 billion units
by volume. Gillette had a 28 per cent (` 1.68 billion) market share in twin blades. Systems
and disposables accounted for three per cent of the ` 6 billion market. The triple blade
segment, a segment charting growth, occupied 2 percent of the market. In value terms, in
2003, double-edged blades comprised 78 percent, systems 15 percent and disposables
7 percent.
India is the world’s largest market for Gillette in terms of volumes. Overall, Gillette was
a $10 billion company. Out-of-stocks represented a large revenue loss. A 10 percent stockout
rate could cost the company up to $1 billion. The opportunity afforded by higher fill rates,
even when discounted 50, 60 or 90 percent, could still be worth $100 million. The challenge
was to bridge supply and demand, especially as the manufacturer usually does not control
replenishment.
The key performance indicators which Gillette uses are forecast accuracy and case fill
rates. Gillette made significant improvements in forecast accuracy, from 40 percent in
2001 to 65 percent in 2003. In the case of fill rate, it improved from 80 percent in 2001 to 96
percent in 2003.

How did Gillette make these improvements? Gillette restructured its organization to
improve the bridge between supply and demand. Gillette created an integrated, horizontal
value chain, combining previous supply chain and commercial operations under one
management point with a principal focus on the customer. Gillette then linked supply
planning to its new customer focused organization. This new organizational structure by
combining and aligning parts of the supply chain together with a focus on the customer,
Gillette created a point of ownership for promises made to the customer.
Next, Gillette identified 11 key elements which it had to improve in order to improve
overall value chain performance. These elements included increase in service levels,
reduction in inventory, and improved costs. By creating an end-to-end value chain process,
Gillette gained a more complete understanding of the whole process and created one face
to the customer.
Gillette then created team-based selling as part of its Customer Value Chain strategy. The
cross-functional teams created alignment from the functions inside Gillette to the
corresponding ones inside the customer’s organization. It worked with customers to map
processes across company boundaries to avoid a gap between Gillette’s processes and the
customer’s processes. The key element that has made these initiatives possible is
Collaborative Planning, Forecasting, and Replenishment (CPFR), data synchronization
(UCCNET) and Auto ID.
Gillette created a Centre of Expertise to pursue further value chain enhancements. These
enhancements include standardizing the company’s approach to forecasting across regions,
customer-based forecasting for promotions, and redesigning some parts of the company’s
warehouse and transportation strategy to improve transit time to customers.
The Gillette story is the story of a company that had to undergo restructuring in 2001 due
to large drop in its profit. It highlights how improved forecasts and demand planning
revived the company and how it was able to increase profits and savings. New techniques
such as CPFR have reinforced the traditional models of demand planning and forecasting.
Source: Upendra Kachru, (2010), “Exploring the Supply Chain,” Excel Books

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