Q$1)$ What steps did P&G take to reduce the impact of the bullwhip effect $($i$.$e$.$extreme demand variation$)$ on Pampers Diapers? In what other ways,according to you, can P&G reduce the bullwhip effect across its supply chain?

Q$2)$ Coordination between the variousstages of the supply chain increases overall profits and moderates the bullwhip effect. What are the basic obstacles in supply chain coordination and how can P&G ensure this coordination?

Procter & Gamble $($P&G$),$ the world$$s leading producer of household products, markets over $300$ brands to $5$ billion people around the world. P&G$$s products fall under three broad categories, namely, beauty care; health, baby, and family care; and household care. In the early $1990$s$,$ P&G faced a problem of extreme demand variations for one of its best$-$selling brands $-$ Pampers diapers. The logistics executives at P&G examined the order rates for Pampers across the supply chain. Though the purchase rate remained more or less steady at the consumer end, the logistics executives found that the variation of orders increased from the retailer level to the distributor level up the supply chain. The variations in orders were attributed to reasons like infrequent placing of orders, changes in prices by the manufacturer; and distributors placing multiple orders. P&G realized that the increasing variability in orders were because channel members upstream did not have information on actual consumer demand.

P&G was using an old supply chain model at this time. The problem with this supply chain model was that replenishment at both the distribution and the supplier sides of the supply chain took several weeks, and sometimes even months. Retailers ordered for replenishment only when they found that a particular P&G product was missing from the shelf, and was not available in the back$-$ office inventory and the distribution center for replenishment. Once the order was placed, the product would be sent to the retailer's nearest distribution center at the earliest. Even at the supplier side, P&G$$s procurement was based on the historical sales data. P&G would contact the suppliers for the required ingredients and packaging materials based on current inventory level.

To correct this situation, P&G took steps to ensure that information on consumer demand and demand forecasts of all channel members were available throughout the supply chain. P&G initiated the use of vendor$-$managed inventory $($VMI$)$ systems in its diaper supply chain, $($involving its supplier, $3$M$,$ and its customer, Wal$-$Mart$).$ The new VMI led to a fall in Wal$-$Mart$$s operating costs. At the same time there was an increase in P&G$$s market share because Wal$-$Mart provided increased shelf space for P&G$$s products across its stores. P&G also began to revamp itssupply chain to increase its efficiency and to get a clear view of demand from actual customers. The company began to provide information to the suppliers on what was sold on a particular day through aggregate point$-$of$-$sale $($POS$)$ data. The main objective was to improve flexibility in the supply chain and provide suppliers with production data on a regular and up$-$to$-$date basis. According to Patrick Arlequeeuw $($Arlequeeuw$),$ vice president of the globalsupply network at P&G$,$This allows $($the suppliers$)$ to better plan their production, and deliver raw and packing materials on a just$-$in$-$time basis.$$

P&G ensured that its entire supply chain was driven by demand. This was because better demand forecasts would lead to less inventory, better order fulfillment and higher profit margins. P&G also understood that sales and operations planning needed to be integrated because a promotional offer from the sales department could easily lead to a rise in demand and an out$-$of$-$stock at the retailstore as more customers were attracted by the discounts. According to Arlequeeuw, $$Sales$,$ logistics and general managers need to work together to get an aligned picture of demand.$$ For this, P&G arranged for important personnel from each product category to meet at least once in a month in order to go over the demand plan. Some divisions, that were under pressure from customers to develop and sell innovative products met more frequently. For instance, the cosmetics division of P&G$,$ met every Monday to exchange demand data.