Essay on Supply-Chain Integration through Information Sharing: Channel Partnership between Wal-Mart and Procter & Gamble – Solved

Supply-Chain Integration through Information Sharing

Channel Partnership between Wal-Mart and Procter & Gamble

(49500 words)




Both  manufacturer (Procter and Gamble, or P&G) and a retailer (Wal-Mart) are major players in their industries, P&G and Wal- Mart found a way to leverage on information technology by sharing data across their mutual supply chains. There are reduced needs for inventories with increased sales by focusing on selling what the customers want. All in all, the supply chain between P&G and Wal-Mart has adopted a much better customer focus through the channel partnership. And it is mutually beneficial. . The resulting channel has become more efficient because channel activities are better coordinated. This integration of the supply-chain information systems will become increasingly important both for enhancing business-to-business electronic commerce and for supporting the increasing volume and customization in business-to-consumer electronic commerce.

Keywords: Integrated supply chains; information sharing; CRP; channel partnership

  1. Introduction

One of the major transformations in the rapidly evolving digital economy occurs in the

supply chains of both traditional and e-commerce companies. Information technology has

enabled channel partners to trade goods, share information, and integrate their processes, thereby

reshaping the inter-organizational dynamics and resulting in more efficient channels. Electronic

integration of data and the automation of business practices has driven costs down and built sales

by better satisfying consumer needs.

This paper describes the development of channel partnership between a manufacturer

(Procter and Gamble, or P&G) and a retailer (Wal-Mart). Both major players in their industries,

P&G and Wal-Mart found a way to leverage on information technology by sharing data across

their mutual supply chains (Figure 1). Because of the information partnership described in this

paper, the resulting channel has become more efficient because channel activities become better

coordinated. There are reduced needs for inventories with increased sales by focusing on selling

what the customers want. All in all, the supply chain between P&G and Wal-Mart has adopted a

much better customer focus through the channel partnership. And it is mutually beneficial.

The power of inter-organizational information systems (IOIS) is well know in the

literature of information systems research. It has proven to be an effective tool for reducing

transaction costs. But the P&G and Wal-Mart partnership has gone further. To understand the

impact fully, one has to think about three progressive degrees of IOIS: transactional, operational,

and strategic (Seidmann and Sundararajan, 1998). The strategic partnership is the most involved,

with the greatest commitments from the partners and requiring the strongest trust. In this paper

we will describe how P&G and Wal-Mart developed this partnership, the main initiatives

adopted in the process, and how the two companies, who are at the same time competitors and

partners, created values from the partnership. Furthermore, it is a partnership that started with

sharing information, but has since permeated throughout all levels of the two organizations.

Figure 1. Role of Information Technology in Supply-Chain Integration

In retrospect, there is a strong logic associated with how P&G and Wal-Mart created

values for both through the channel partnership. Yet, as described in this paper, the two

companies in the beginning were both tentative. They essentially stumbled into the idea and then,

as the value started to be discovered, progressively built stronger collaboration as more benefits

were unleashed. The partnership started with the simple desire to improve business relationships,

and was gradually enhanced by sharing information and knowledge about their respective

markets. This sharing in turn enabled more effective execution of such concepts as category

management, continuous replenishment, and process coordination, which collectively helped

make the supply chain more efficient. Clark and McKenny (1995) detail the development of the

supply-chain collaboration and describe the process in which the channel partnership between

the two companies was built on an incremental basis.

S upplier D ist r ibutor R etai l er Consumer

Role of Technology

The remainder of the paper is organized as the following. Section 2 presents the business

background behind how the two companies started building the partnership. Section 3 discusses

how P&G and Wal-Mart built channel partnership and information sharing. In Sections 4, the

details of how the two companies implemented information sharing and continuous

replenishment is discussed. Section 5 further describes the additional benefits of the information

partnership. Section 6 discusses the logic category management. Finally, Section 7 concludes the


  1. Business Background

To fully comprehend the role that technology has played in the Procter & Gamble and

Wal-Mart business relationship, an understanding of the business relationship prior to 1988 is

needed. The business situation in 1988 between P&G and Wal-Mart was broken. The business

itself was $375 million and growing. In spite of this, the business relationship between the two

companies was poor. P & G had organized itself into12 different internal product divisions.

Each division had different sales managers that would separately and independently call on Wal-

Mart. These individuals were accountable for the sales results of each division and never came

together to represent P&G as a whole.

At that time, the relationship between P&G and Wal-Mart was characterized as anything

but collaborative. As a matter of fact, their relationship was adversarial, obsessed by day-to-day

transactions. Furthermore, their business relationship was conducted through fragmented

processes. The details of these problems are summarized by the following characteristics:

(1) Adversarial relationship. Wal-Mart did not like doing business with P&G. P&G

organizations were too complicated and inflexible.

(2) Transactional focus. P&G were obsessed by day by day selling, in which success was that

you got the order today – failure was that you did not. Efforts were made to push for sales

irrespective of what the customer needed, or was rewarded for. There were no testing or long

term planning.

(3) Fragmented processes. Relationship and activities were managed by the buying and selling

function only. The selling function within P&G was responsible for all customer activity. They

were responsible for selling at the customer. The role that information systems played in the

relationship was non-existent. The IT group typically got involved only after phone calls down

the chain informed us that a technology project such as Electronic Data Interchange (EDI) was

requested by the customer.

In 1985, Sam Walton called Procter and Gamble’s CEO to inform him that Wal-Mart had

awarded P&G their prestigious “Vendor of the Year” Award. The sales organization dealt with

customers sent Mr. Sam’s call to the corporate office resulted in him being transferred 5-6 times.

Having never reached P&G’s CEO, Mr. Walton decided to give the award to another vendor.

P&G began to re-think the way it approached its customers about the same time. The

newly appointed Vice – President of Sales of P&G met with Sam Walton and discussed the P&G

/ Wal-Mart relationship. Mr. Walton indicated that it was a shame that two quality companies

could not work together effectively. He shared that P&G had an extremely overcomplicated

and inflexible sales organization. He stated if P&G thought of Wal-Mart stores as an extension

of the P&G company, P&G would treat Wal-Mart differently. This challenge became the

rallying cry for the two companies. Figure 2 (a) describes the relationship between the two

companies before and after the partnership. Today, as depicted in Figure 2 (b), the two

organizations collaborate on all levels in all business functions.

Figure 2. Working Relationship between P&G and Wal-Mart (a) before the Channel Partnership

and (b) the Relationship Today.

Great strides have been made since the 1988 start-up of the P&G dedicated Wal-Mart

team. The two companies have grown the joint businesses from $375 Million in 1988 to over $4

Billion dollars today. Moreover, P&G and Wal-Mart have improved the profitability of both

companies by using multifunctional resources to drive out costs and improve sales. The two

organizations use joint scorecards to review the joint business and make annual plans to drive

category growth for both companies. Together they use technology as a method to drive out

costs, and openly share data to better understand our joint customer – the consumers. To

emphasize the strong commitment to develop a mutually beneficial partnership, the P&G and

Wal-Mart team developed a mission statement, which reads:

The mission of the Wal-Mart/P&G Business team is to achieve the long-term business

objectives of both companies by building a total system partnership that leads our respective

companies and industries to better serve our mutual customer – the consumer.”

Technology has played a key role with Wal-Mart in three areas:

  1. Joint scorecards and measurements
  2. Driving out costs through automation
  3. Sharing data to better understand the consumer and drive sales
  4. Channel Collaboration and Information Partnership

P&G’s Corporate Reporting System was developed based on the market and geographic

structure used by the 12 product divisions. All sales reports were designed so P&G could track

the amount of product (e.g., laundry detergent) sold in the Western part of the country, however,

they did not have a system capable of reporting total product sales by customer. A system

needed to be developed to track sales by customers. Once this system was developed tracking

sales by customers was possible.

P&G’s shipment data proved helpful in understanding how much business was sold to

Wal-Mart. Some of the questions Wal-Mart had were:

(1) How much of the product was sold at stores last year?

(2) How many customers bought P&G products?

(3) What was the profitability of these products for both P&G and Wal-Mart?

These were real questions that needed to be answered. The infrastructure that was needed to link

P&G’s data with Wal-Mart’s data proved to be a critical step in understanding the consumer’s

needs. Wal-Mart was just coming online with a new data warehouse that allowed them to track

sales of all products in each of their stores. P&G and Wal-Mart jointly developed a data

highway that linked P&G data to Wal-Mart data driving down costs and sharing information to

meet the consumer’s needs.

Data Delivery Highway







Shelf Mgt. Marketing Profitability



Replenishment Activity Based




Figure 3 The Data Highway for the Manufacturing/Retailing Integration

The data highway concept (Figure 3) was straightforward, Wal-Mart had scanners in all

of their stores to track, measure and analyze their business. Wal-Mart collected its own data then analyzed the results. P&G also had data about the consumer which was used to make product decisions. Why did she/he prefer a certain product or go to a certain store to buy diapers for her/his children? These insights from P&G about the consumer were combined with information regarding what was happening inside the store from Wal-Mart thus creating an information data highway.

These linkages allowed P&G to build “exit ramps” to support applications such as joint

business scorecards, replenishment, EDI, customer table checking and category management.

Each of these will be explained later.

A joint common scorecard was developed that reported, as described in Table 1: the sale

of P&G products at Wal-Mart, margin and profit results, inventory turns, and other financial and

logistics measurements. The integration of P&G and Wal-Mart data played a key role in

delivering these scorecards. This common “language” allowed the partnership to focus on the

end consumer and used combined data to measure joint progress.

Wal-Mart – Procter & Gamble U.S. Business

1998-99 Scorecard

Wal-Mart Fiscal Years – $ Millions

Wal-Mart FYs

96/97 97/98 Index

Retail Sales (W-M POS Data)

Wal-Mart Stores

Gross Margin % (W-M POS Data)

Wal-Mart, Inc.

Inventory Management (Wal-Mart Stores)

Store Inventory DOH

Total DOH

Service Levels (% Fill)

In Stock Level

On-Time Delivery to Whse


PO/Invoice Match Rate

Deduction Rolling Balance

Past Due Invoice Payment Rolling Balance

Customer Pick-Up Revenue

Table 1 Wal-Mart Procter and Gamble 1998-99 Scorecard

Leveraging technology to drive costs out of the supply system is another important aspect

of the information systems function. The delivery of products to the end consumer involves a

series of steps including raw material delivery, conversion to a finished product, transportation to

a distributor or customer distribution center, transportation to the store and placement on the

store shelf. The degree to which all parties involved can drive costs out of these systems result

in corresponding savings that can be passed on to the consumer in the form of lower product


In order to drive down costs product information is needed to move from the retailer back

through the supply system. As better consumer data flowed back from the retailer to the raw

material supplier, better forecasts could be anticipated and the right material put in place for

finished product manufacturing.

  1. Information Sharing and Continuous Replenishment

An important strategy for managing integrated supply chains is to share information

among supply-chain partners. One of the main benefits of sharing information is the reduced

need for inventory. As a result, the supply chain achieves better performance in terms of

financial returns, service level, and turn-around times.

With information shared among the manufacturer and the retailer, the manufacturer can

use the information about the inventory level of the retailer to manage the frequency, quantity,

and timing of the shipments– instead of waiting for the retailer to place orders. This practice,

referred to as continuous replenishment process (CRP), enables the manufacturer to reduce the

inventory necessary and to plan the shipments more efficiently (Clark and Lee, 2000), as has

been implemented by P&G and Wal-Mart.

P&G replenished Wal-Mart’s inventory based on inventory data received from Wal-

Mart’s distribution center (DC). This data allowed P&G to manage the inventory levels to insure

that P&G products were in stock at all times. P&G used their information data highway to

fundamentally change the replenishment process by linking Wal-Mart’s inventory data at their

distribution centers and P&G’s replenished inventory based on movement of product through

their DC’s. P&G reduced the order cycle time (amount of time from the order generation to

delivery) by 3-4 days. This process also dramatically increased inventory turns which resulted in

a reduction in the inventory of the entire system.

Figure 4. Inventory Levels without (a) and with Information Sharing (b).

One way to explain the benefits of information sharing and CRP is from the perspective

of the so-called “bull whip effect,” that is, the small fluctuation of demands tend to be

progressively amplified when moved up the supply chains. There are many reasons behind this

phenomenon in a multi-stage supply chain, such as the use of safety stock at each stage, the

varying batch sizes, ordering frequency, and lead-times, and irregular behaviors like forward

buying (Lee, et al., 1997). In Figure 4 (a), for example, the real demand as reflected by the POS

data is relatively flat, but the inventory level at the warehouse becomes very fluctuating because

of such factors as batching and order lead-times.

For the same POS data, when CRP was implemented by sharing the demand data with the

manufacturer, i.e., P&G, the performance is greatly improved (as shown in Figure 4 (b)). Instead

of the highly fluctuating inventory level used by the warehouse in Figure 4 (a), the warehouse

inventory is much reduced. Moreover, the inventory level for the retailer is also reduced. This is

due to the reduced uncertainties and shorter lead-times when CRP is used. P&G executes

continuous replenishment by three pieces of information:

(1) actual warehouse on-hand quantity,

(2) actual warehouse on-order quantity, and

(3) projected sales demand from the stores.

CRP has become a common practice in the retailing industry (Cachron and Fisher, 1997).

Wal-Mart, for example, has demanded it suppliers to implement CRP. However, underlying the

implementation of CRP as well as sharing information is the mutual trust among the partners.

Also involved in the equation of information partnership is the bargaining power. Because of the

possession of demand data and the customer information, the retailers increasingly have the

bargaining power. As a result, they can demand their suppliers to implement CRP, thereby

freeing them from having to place orders. Other than sharing the demand information, supplychain

partners have started to share other types of information as well.

The leveraging of information technology and the successful improvement of channel

process efficiency have enabled Wal-Mart to reach higher financial goals. Now Wal-Mart is

aiming to sell its goods so quickly that they are out of the store before Wal-Mart must pay its

suppliers. That is primarily made possible by sharing information and executing CRP. The

typical item from P&G currently spends less than 8 hours in a Wal-Mart warehouse. These

products shipped to Wal-Mart are the retailer’s shelf within 4 hours, and are usually sold within

24 hours1. This ability to receive payments from customers for its products before having to pay

the suppliers, that is, achieving negative “cash-to-cash cycle-times” makes Wal-Mart in the same

league with companies such as and Dell Computers as companies having the most

efficient supply chains.

  1. Additional Benefits of Information Sharing

The role of technology was to link the supply chain by using industry standards

Electronic Data Interchange (EDI) to communicate key business documents. Purchase orders,

invoices, advanced shipment notification, and financial payment are just a few examples the

electronic transmission of EDI. It was critical that EDI not be used to automate poor business

practices. It was imperative that we streamline the business “handoffs” then use automation to

drive the process. To understand the value of simplifying the business process then applying

technology, the business situation below provides a concrete example.

By 1990, P&G’s business relationship with Wal-Mart was headed in a positive direction.

Joint sales were up, standard scorecards to track the business, and both companies were proud of

the progress of the partnership. However, there continued to be issues in the area of accounts


For example, P&G had developed a billing accuracy system that was used to measure

how accurate P&G’s invoices were against Wal-Mart’s purchase orders. P&G felt that Wal-

Mart’s accuracy was very good, exceeding 95%. During a meeting to discuss vendor

performance, the accounts payable manager of Wal-Mart stated that P&G was one of their worst

vendors with the lowest purchase order to invoice match rate. Of the purchase orders sent to

Wal-Mart, 15% matched invoices. Something was wrong. All purchase orders were via EDI as

were all invoices. If the invoices matched, they would be paid automatically. If they did not

match, both companies manually handled them. P&G believed that 95% of the invoices were

accurate, Wal-Mart believed it was 15% and deductions were at an all time high.

To address this problem P&G placed a person from their customer service organization

into Wal-Mart’s accounts payable group. The person’s responsibility was to track each purchase

order/invoice combination and attempt to identify the problem. After a 3-week assessment, P&G

found that they had different definitions of billing accuracy. P&G defined billing accuracy as

being billed for a certain number of cases that were shipped to Wal-Mart. However, Wal-Mart

defined billing accuracy as both the number of cases and the dollar amount of each case. For

example, if P&G had a box of detergent for $25 in their item file while Wal-Mart had the same

product for $25.05, the invoice sent did not match the purchase order! P&G also discovered that

most purchase orders and invoices that did not match were due to different prices in the Wal-

Mart and P&G systems. The automation through EDI only moved bad data faster and resulted in

re-working both systems. The cost of the mismatch was calculated at $50 per occurrence.

Technology played a role in identifying and correcting pricing errors. A tool was built

called the Customer Table Checking Tool (Figure 5). Every Monday morning before any

purchase orders were created, P&G linked into Wal-Mart’s item file of P&G products and

compared them to the pricing and product specifications in P&G’s item file. If any of the items

did not match, they were flagged as an exception and electronically corrected.

Figure 5 Customer Table Checking

As a result, P&G’s purchase order-invoice match rate went from 15% to 95%. This new

system has resulted in P&G moving from one of Wal-Mart’s worst vendors to one of the best.

The customer service organization insured the data in both systems would be correct and EDI

was used to drive down costs and improve the order cycle time. This tool has been used with

P&G customers worldwide.

  1. Category Management

Using the design technology of data sharing allowed P&G and Wal-Mart’s partnership to

make better consumer based decisions. The key decisions made by the retailers include:

  • What are you going to buy?
  • Where are you going to put it (shelf location)?
  • How are you going to price it?
  • When should it be promoted?

Key questions for retailers can be answered by integrating data from three sources:

(1) Manufacturers’ market data

(2) Retailers’ internal point-of-sale systems and

(3) Third party market data providers such as Nielsen or IRI.

Figure 6. Category Management

Retailers point of sale (POS) data show the results of consumer’s choices, thus providing

the actual demand. It provides the platform resulting in information on what is selling and the

selling price. It does not explain why nor does it provide insights into the market dynamics. In

contrast, manufacturer’s consumer data is helpful to understand why a product is being

purchased. P&G is a research and development company first. Consumer needs are studied,

products are then developed and manufactured to meet those needs. P&G studies consumer

trends and understanding these trends provide insights that the retailer itself does not have.

Finally, third party data providers help explain the market dynamics of a product. It provides

insight into consumer trends and provides a perspective on growing consumer needs. Should a

retailer be pleased with a 10% increase in sales vs. last year on a particular category? If his

competition is indexing at 5% the answer is yes, if the competition is indexing an increase at

18% then the buyer is losing share in a growing category. This information is valuable in

determining the markets key items not carried in their stores.

The key is the integration of these three data sources for making decisions, as shown in

Figure 6. An integrated manufacturer/retailer database should be used to share common data

scorecards and allow for quick analysis by all parties.

Each business application between a manufacturer and a retailer should be agreed upon

early if it is proprietary between the two companies or if it can be shared with other

customers/suppliers. Wal-Mart, for example, now has a strategy to share data with their vendor

partners. A tool has been developed called “Retail Link” that links Wal-Mart’s data with their

key vendor partners and carriers. P&G has re-applied their customer replenishment systems and

the Customer Table Checking Tool to other customers. It is critical for both companies to come

to a common point of view on the expansion of these systems. Ideally, most of the electronic

linkages between manufacturers and retailers will be similar to the EDI standards that are in

place today.

Wal-Mart has in its possession customer data that is greater in volume than the database

of Internal Revenue Service (the U.S. Federal Government’s tax agency). When this vast set of

data is shared, what is in great need is to use data mining techniques to develop actionable

decision rules. For instance, P&G and Wal-Mart have shown that simply by eliminating losers

from the shelf and add more winners, the two companies can both be better off. For example,

after a study of the sales data, P&G recommended to Wal-Mark to eliminate 56 items that were

not sold well based on Wal-Mart’s POS data. What is more, using its market data, P&G also

recommended 25 products that were market winners. This simple decision based on data shared

among the two companies increased the sales by 32.5%.

Technology continues to play a role between manufacturers and suppliers. On the supply

side, they have moved from EDI purchase orders and invoices to looking at Collaborative

Planning Forecasting and Replenishment (CPFR). This industry model provides a platform for

the collaboration of a joint forecast between manufacturers and suppliers that will ultimately

drive the replenishment process through the entire supply chain. This may eventually lead to the

elimination of purchase orders and invoices as we know them today.

Second, watch for industry standard approaches to share the demand side data similar to

the standards they have in place today for EDI. Developing an industry based approach for

sharing point of sale data, market data, and consumer data for joint decision making will be a key

to success. In addition, driving key third party data providers such as Nielson and IRI to provide

quality data in agreed to Industry standard hierarchies will lead to better integration between

joint buyer/seller workstations. The Internet will provide the technical platform to exchange

information between manufacturers, retailers and third party data providers.


  1. Summary

Looking back over the ten-year period between Wal-Mart and P&G, information

technology has created a common language, driven down costs, and provided an avenue for

increased sales for the P&G and Wal-Mart partnership. Several key lessons learned are

summarized in the following for understanding the role that Information Technology can play in

the manufacturer / supplier relationship:

1) Use Information Technology Resources: Information Technology (IT) resources can play a

big role in the business. IT can provide technology solutions to link suppliers and retailers.

Ensure proper staffing of these resources to drive volume and reduce cost.

2) Teach them the business: Take time to train your IT about the business. The days of the

business ignorant programmers are fading. IT professionals have to know the business


3) Focus on the consumer: Use data and technology to understand better the consumer’s needs.

When a debate about approaches occur, ask yourself the question “What is right for the

consumer, what are her/his needs?”. This will help you approach the problem differently.

4) Data can be information: Retailer data is typically used for quick decision support, P&G data

is used for analytic decision support. When merged, this data create tremendous gains for

both companies. Information Technology can also be used to sift through large amounts of

data and provide exceptions or out of range business parameters. Using IT to identify key

outages such as low sales on a fast moving item, out of stock on a key sku etc, will provide

powerful business solutions for both companies.

5) Employ Industry standards: Driving towards common methods of communicating business

transactions and data sharing reduces cost for the entire supply chain. Just as we have

standardized logistics such as pallet size, truck dimensions from a supply chain perspective,

automating business transactions will also drive down costs of the manufacturer/supplier


6) Commitment to Information Sharing: Sharing point of sales data. Market data, and consumer

data among channel partners for joint decision making is a key to the success of the

integrated supply chains.


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Evaluation and Enhanced Inventory Decision Rules, “ Production and Operation

Management, 6, 3, Fall, 1997, 266-276.

(2) Clark, T. H. and Lee, H. G., “Performance, Interdependence, and Coordination in Businessto-

Business Electronic Commerce and Supply-Chain Management,” Information Technology

and Management, 1, 2000, 85-105.

(3) Clark, T. H. and McKenny, J. L., Procter&Gamble: Improving Consumer Value through

Process Redesign, HBS Case #9-195-126, Harvard Business School, Boston, MA, 1995.

(4) Lee, H., Padmanabhan, P., and Whang, S., “Information Distortion in a Supply Chain: The

Bull Whip Effect,” Management Science, 43, 1997b, 546-58.

(5) Seidmann, A. and Sundararajan, A., “Sharing Logistics Information Across Organizations: