We referenced this collaboration in a previous blog and received a lot of questions about it. So we decided to dedicate a ‘case study’ to this collaboration.
In the late 1980s Walmart was P & G’s fifth largest customer and Mike Graen had been charged with the responsibility of improving the commercials for Walmart by P & G. He did this through collaboration and by using data and the right systems.
So what were these changes?
P & G decided to place a team at Walmart to work closely with the Walmart teams. They started with placing c. 20 people from different functions at the Walmart HQ. The team had access to inventory levels, store-level sales data, and all the data points from when P&G shipped a product/case to Walmart, to when it was sold to a consumer.
The benefit of sharing information was to improve forecasting and reduce the bullwhip effect (Bullwhip effect – uncertainty in demand grows with information that is available at higher nodes in the supply chain). This created a more efficient supply chain network and improved merchandising at stores. When analysing POS data, a more accurate forecast of demand is generated than when analysing shipment data to retailers.
This ensured that products were on shelf and in the warehouse when shoppers came in to buy it, eliminating overstocking and understocking. It made it easier for P & G to plan their production runs and warehouse stock reducing their costs. This ensured that there were no out of stocks on shelf or in the warehouse and that write offs driven by overstocking were eliminated, increasing revenues for both and reducing costs.
The ‘father’ of the Walmart/P & G partnership, Tom Muccio, said in an interview with Valuecreator “During my time as leader of P&G global customer teams, we always tried to ensure that both sides were living up to the principle of “co-determination”. In other words, no party would take a decision that could harm the other’s position without prior consultation of the partner. A case in point were the notorious “Dear vendor…” letters, which we quickly eliminated, as they did not make sense in a Level 5 relationship anymore. Another principle was to advise the customer on the best product portfolio neutrally and not just to hard-sell our products. As a result, we often ended up advising Walmart on how to deal with other suppliers in the best possible way. Sometimes, this was not beneficial to us but created a massive basis of trust. And lastly, we paid great attention to the principle of equality in our team culture. Irrespective of the hierarchy, all members of the team had the same small offices, and the corner offices were turned into meeting rooms. Such symbolic measures reinforced the teamwork culture and were also in line with the way Walmart’s culture worked.”
So what was the impact of this close collaboration?
Before these changes, the most P & G knew of sales at Walmart, was that a purchase order had come through which needed to be fulfilled. Within 8 months of the new relationship, they were able to improve profitability by $50million and P & G’s sales to Walmart went from $350 million annually to $13 billion at its peak in 2013; $11 billion in 2021.
John Nash, a pioneer in Game Theory captures this collaboration best, ‘The best for the group comes when everyone in the group does what’s best for himself (applies to all genders & entities) AND the group.’
Given the obvious benefits of collaboration and sharing data, it is a surprise that more companies do not have collaborative relationships with their retailers.