A "go to market" strategy : enabling P&G profitable share growth through streamlined logistics

Abstract

The cosmetics industry is an intensely competitive, fashion-driven industry. As such, new product launch processes are viewed to be a competitive advantage in promoting continued brand awareness in the market place. However, very few resources are in place to encourage manufacturer and retailer collaboration and to monitor new product launches during launch and after the initial 3-6 month promotion period. As a result, large trade inventories and product return charges negatively impact both the profitability of the manufacturer, Procter & Gamble (P&G), as well as their retail customers. This thesis concentrates on supply chain management methods to enhance the profitability of launching new products in the cosmetics industry to both P&G and one retail customer, Retailer A. Of the retailers that P&G sells cosmetics through, Retailer A represents one of the largest opportunities to reducing trade inventory and product return charges. An analysis presented in this thesis revealed that Retailer A ordered an average of 18 months of a new product during the first 2-3 months of launch for products released in the January 2000- May 2001 period. Research was conducted during a six and a half month internship within P&G's Product Supply group at the Cosmetics Division in Hunt Valley, MD. The internship was affiliated with the Massachusetts Institute of Technology's Leaders for Manufacturing Program. Outputs of this work include a high-level strategy for launching new products within this division, as well as logistics tactics developed via a dynamic supply chain model. Through theoretical and simulation analysis, the project revealed that implementing unique stocking and reordering strategies for launching new products based on item type and retail store sales volume results in significant savings to P&G and Retailer A. For Retailer A alone, the impact of implementing the project recommendations is estimated to be approximately a one million dollar reduction in final retail inventory, which translates into between a half a million and a one million dollar reduction in P&G's product return charges. In addition, an in-stock improvement opportunity is estimated to be one hundred and thirty thousand dollars, translating directly to improved service for the final consumer.