P & G: Taming the Bullwhip Effect

Procter & Gamble (P&G) had estimated the cost of bullwhip effect and during the 1990s, it started an
ambitious programme through which it virtually eliminated this effect in its supply chain. It has entered
into a relationship with Wal-Mart (the largest customer accounting for about 17% of business in the US
market), wherein Wal-Mart doesn’t place any orders but shares point of sales data with P&G and P&G in
turn maintains the required inventory at Wal-Mart Shelves. Wal-Mart also shares its future promotion
plans with P&G so that there is complete information integration in the chain. To avoid problems
associated with price fluctuations, P&G has stopped offering various trade deals that used to encourage
trade dealers to do forward buying. Rather than offering frequent trade promotions (offering hi-low
prices), P&G works with the concept called everyday low prices (EDLP). It has reduced its list prices by
12-24% and managed to reduce its inventory by about 25%. P&G maintains similar relationships with
suppliers like 3M.

Suguna’s Franchise Farming Model

Suguna Poultry is the leading poultry manufacturer with a business value of Rs. 14.01 billion. The fast
growth and overall success of Suguna Poultry lies in its unique model of franchise farming where
breeding of chicken is managed by 13,000 farmers who own broiler farms. By adding more farmers to its
network, Suguna is able to ramp up its operations at a rapid pace in 10 different states. The farmer’s
performance is manifested in the mortality of the birds as well as the average weight of the broilers
obtained. Suguna has devised a unique compensation structure for the farmers so as to incentivize them
for better performance. The production cost per kilogram of the end product, obtained using standard
costing approach, for the farm is used to determine the appropriate compensation, that is, growing
charges per kilogram to the farmer. For any increase or decrease in production cost, 30% of the
benefit/cost goes to the farmer while the rest is shared by the company.