Procter & Gamble is one of the largest consumer-goods manufacturers in the world with 19+ billion dollar brands from health and beauty care products to paper products. In the mid-1980’s, P&G management launched several projects to improve service and reduce costs across the supply channel. The first effort emphasized the logistics system that currently existed between retailers/wholesalers and manufacturers, more specifically P&G. They focused their efforts on improving supply logistics and reducing channel inventory through a process that became known as continuous replenishment, or CRP.

The second project was to revise the ordering and billing system to improve total ordering and service quality for channel customers. Both of these undertakings would require the involvement of electronic data interchange (EDI) to transmit data daily to create efficiency in the supply chain. After developing and thriving under the new logistics processes, Procter & Gamble decided to sell the technology to IBM who would be able to implement it throughout the manufacturing and retail industry. Was this a good decision on P&G’s part?

Top management, such as executive vice presidents Durk Jager, Edwin Artzt and others, were responsible for the decisions pertaining to CRP, EDI, ECR (Efficient Consumer Response) and the selling of the technology to IBM. When implementing the CRP program, sales increased of P&G products through CRP retailers 4% more on average than non-CRP retailers (1993).

The company gained more market share by expanding CRP than through product extensions (a reason for selling the technology). Although initially the benefits of CRP were reductions in inventory, stockouts, and handling and transportation costs, increased adoption of CRP by P&G customers (retailers and wholesalers) offered dramatic cost saving opportunities for production and raw-material purchasing. 10% of the estimated cost of paper production was the cost of excess capacity required to handle product demand variations. These potential benefits of CRP for production cost and inventory savings were extremely large, and could possibly create even further cost savings when P&G teamed to better use the improved information about demand that was available through CRP ordering data.

By selling the CRP system to IBM, it would increase the total number of manufacturers using CRP. With more and more manufacturers using CRP, the retailers would eventually be forced into conforming to industry standards and CRP, or lose market share and customers. Procter & Gamble believed that even though this would make the relationships between its competitors and retailers more efficient, that they would ultimately win in the market by providing the best product to the consumer at the lowest cost through the channel.

The only way Procter & Gamble could realize all the complete beneficial savings of the CRP vision was to push the whole industry to using it. Without more retailers using the system, P&G would only see small increases in cost savings. But by having IBM offer CRP systems capabilities quickly, at low cost and with experienced personnel, it would allow retailers to interact with multiple vendors in a common format, creating a powerful standardization in the industry, and reducing the barriers to CRP adoption. With the implementation of CRP across the retail chain, P&G has the ability to realize an increased amount of savings, while still offering the same high quality products at low costs.