Table of Contents

Executive Summary…….….………………….……………………………………...………………. 2

Introduction / Background.…………………………………………………………...………………. 2

Problem Statement…….…...………….…………………………………...…………………………. 3

Strategy / Solution Analysis……………….……....…………………………………………...……... 3

Reflection……………...…...…………….…...………………………………………………….….... 5

Conclusion……………………...………………………………………………………………...…... 6

References………………………...……....…………………………...…………...…………………. 7

Exhibit 1….….…....………………………………………………...….…….…...….….……………. 8

Exhibit 2...………....……………………….……………………...………...…...………….……....... 9

Exhibit 3………….……………………....…………….……………...………....……………...…... 10
NEGOTIATING THE P&G RELATIONSHIP WITH WAL-MART 2

Executive Summary

This case describes the evolution of a partnership between a manufacturer and retailer and how both
companies shared data to effectively manage their respective supply chains. Procter & Gamble (P&G) and
Wal-Mart suffered from many internal issues while developing a supplier-retailer partnership. The struggle
included a lack of trust, information sharing and a collaborative relationship at the senior management level.
These problems further contributed to the bullwhip effect.
Lou Pritchett, Vice President of Sales and Sam Walton, founder of Wal-Mart shared a vision to turn
their working relationship from an adversarial to a joint partnership. This strategy was assigned to Tom
Muccio, who would become the lead negotiator for P&G Business Development with Wal-Mart. Muccio
overcame many hurdles, such as the resistance of change from senior management. Tom would later develop
multiple strategies that would later unify the sales and procurement divisions of P&G and Wal-Mart. Such
strategies were known as the “new money approach,” as well as a joint problem solving process that would
establish multi-functional teams in order to create a positive working culture.
This report further reflects onto the decisions made by Muccio. Many points, such as the adversarial
relationship and the strategic plans were agreed upon as a thoughtful solution to rally the departments. An
industry benchmark was then utilized to validate a strategic and collaborative relationship. In spite of the
eCommerce dilemma, P&G and Wal-Mart have continued their supplier-retailer relationship.

Introduction / Background

The case describes the vision shared by Lou Pritchett, Vice President of Sales and Customer
Development for Procter & Gamble (P&G) and Sam Walton, owner and founder of Wal-Mart. relationship
during the 1980’s. Wal-Mart was based in Bentonville, Arkansas while P&G was based in Cincinnati, Ohio.
This distance created not only geographical barriers but the general business methods used by supplier-
retailers was recognized as outdated and inefficient.
Pritchett would then push the senior management of P&G to create a team lead by Tom Muccio,
combining the manufacturing, engineering, buying, and customer service into one multifunctional team to
renegotiate and improve their relationship with Wal-Mart. Tom would become the inside guy in negotiating
the P&G relationship with Wal-Mart from 1987-2003.
According to Muccio, “P&G had experienced sub-par business growth overall in the early 1980’s”
(Sebenius & Knebel, 2007). Because forward buying and inventory diverting were common practice in the
retail industry at that time, retailers and manufacturers were not helping each other to flourish both their
businesses. Instead, they were acting as rivals not trusting one another. This was clear by the lack of
collaboration between the two companies as both P&G and Wal-Mart employees were reluctant to share
relevant information and also highlighted by the non-existent relationship between the management level of
both corporations.
NEGOTIATING THE P&G RELATIONSHIP WITH WAL-MART 3

Problem Statement

While developing a supplier-retailer partnership, Procter & Gamble and Wal-Mart encountered many
internal issues, such as information sharing, lack of trust, maintaining a collaborative relationship from senior
management and even battling with the bullwhip effect from customer demands.

Strategy / Solution Analysis

Lou Pritchett and Sam Walton both shared a vision of a joint partnership which would supply its
customers with the most competitive prices while providing profit margins which could equally soar between
Wal-Mart and P&G. Unfortunately, the vision was not shared internally between the sales division of P&G
and the procurement department of Wal-Mart. This section will identify many of the internal problems while
providing solutions that were ultimately agreed upon.

Adversarial Relationship vs. Partnership:

Problem one began with the longstanding notion that suppliers and retailers were not supposed to
work together. This old way of business led Pritchett to come up with a new strategy and essentially “change
the system” and change from an adversarial to a partnership. Tom Muccio was assigned as the lead negotiator
for P&G where he came up with a product supply strategy. This strategy would combine manufacturing,
engineering, buying and customer service into one. The goal was to reduce costs and improve speed-to-market.
Multi-functional teams were then commissioned by senior management in order to study the P&G-customer
linkage for marketing in the year 2000. They discovered that P&G was both an internal and external company.
Externally they dealt with competition, conflicting objectives and lack of system understanding. Internally
they dealt with issues of teamwork, collaboration, focus and trust between both sales and buying departments.

Senior Management Resists Change:

To make things worse, because senior management for P&G and Wal-Mart resisted change, the sales
and purchasing divisions would feed off of their leadership and become indifferent, themselves. As a solution,
Muccio agreed to move to Bentonville, Arkansas where Wal-Mart’s headquarters lied. The move would allow
Tom to be involved with Wal-Mart’s purchasing department on a daily basis, thereby creating better
negotiating tactics and develop what he would call a “culture of counterparts” (Sebenius & Knebel, 2007).
Muccio saw that there were three types of negotiations: price, compromise and joint problem solving. His
vision would be used to negotiate smaller disputes and develop “skin in the game” for both parties (Sebenius
& Knebel, 2007).

New Money Approach:

Tom Muccio “employed a “new money” approach to negotiation based on aligning incentives, sharing
information and using multifunctional teams” (Sebenius & Knebel, 2007). This incentivized program would
NEGOTIATING THE P&G RELATIONSHIP WITH WAL-MART 4

take money not used from somewhere else and apply it towards the margins. In order to do so, three barriers
would have to be overcome: misaligned incentives, privately held information and narrow set of organization
perspectives. As a result, pre-built displays would eliminate stalemate margins and a rewards and recognition
system that would incentivize departments both internally and externally for Wal-Mart and P&G. Muccio also
saw fit that through the support of joint problem solving, a big umbrella approach would allow each company
to combine their supply chain data in order to identify problems that could be mutually identified and solved.

New Culture:
Tom Muccio recognized the culture between P&G and Wal-Mart needed to be improved to address the
lack of information sharing, joint-planning and coordinated systems. Muccio adopted the following cultural
changes as a result to unify both companies into a strategic partnership. Muccio’s action’s led to the following
changes: replacing words like “Negotiations” to “Joint Problem-Solving Process,” or eliminating the word
“Sales” with “Customer Business Development Department” and even “Contract” with “Letter of Intent,” the
overall psychology of the companies would be positively affected (Sebenius & Knebel, 2007).

Changes to Performance Incentives for Sales Team:

The strategic steps that P&G took was revising its employee sales incentive and performance
programs. “P&G used to reward its U.S. sales managers for transferring inventory from its production site to
the retailer’s warehouse or stockroom, regardless of what was best for the retailer” (Kumar, 1996). P&G has
revised its employee incentive programs based on maximizing the profits for themselves and their customers.
Also, Wal-Mart has established metrics for P&G’s performance to track inventory turnover and stock-outs.
Eventually, Wal-Mart’s senior management developed a Private Label strategy to gain better leverage and
control over their suppliers.

Private Label Strategy:

Currently, Wal-Mart partakes in what is known as “Private Label”. They use this method to gain
leverage and control over their suppliers, such as P&G. For example, White Cloud is a tissue brand which
Wal-Mart had bought and registered the trademark to turn the product into a private label (Roberts & Berg,
2012). The label in turn, directly competes against P&G’s Charmin brand. Great Value and Equate are also
private label lines that Wal-Mart has used to keep their supplier’s prices down. This strategy Wal-Mart uses
against P&G as well as other suppliers is used to benchmark against price variations and overages (Roberts &
Berg, 2012).

E-Commerce Era (2008-Present):

Today, Wal-Mart and P&G are headed by new chief executives. They are equally led by aggressive
investors who are constantly looking to outdo the other. Wal-Mart’s annual revenue fell in 2015 for the first
time since 1970 and P&G’s annual sales have been stagnant since the recession of 2008 (Nassauer & Terlep,
2016). Due to online shopping and e-Commerce platforms, the partnership has become strained as Wal-Mart
NEGOTIATING THE P&G RELATIONSHIP WITH WAL-MART 5

is having to spend billions on e-Commerce against competitors like Amazon. According to P&G spokesman
Damon Jones and Lorenzo Lopez, a Wal-Mart spokesman, their business relationship has remained amicably
as they continue to focus on maintaining everyday low prices for their customers (Nassauer & Terlep, 2016).

Reflection

This report recognizes P&G and Wal-Mart’s relationship was not an integrated buyer-seller partnership
and lacked the collaboration for both companies to manage day to day business effectively. The relationship
was adversarial, transactional, fragmented and lacked a process for information sharing.

Adversarial Relationship:
P&G and Wal-Mart had an adversarial relationship between the two companies. The Wal-Mart
organization felt distrust in the P&G organization and further felt they had been too complex and rigid in
business dealings. This report suggests that P&G was very focused on a “push-pull” strategy. “Their sales
would “push” the product into the distribution channel and then radio and television commercials would
influence the end-using consumer to “pull” it out of the stores”. This reports agrees that P&G had a
fragmented organizational structure further contributing to the lack of an integrated buyer-seller partnership.
P&G had eight different internal product divisions calling on Wal-Mart with each division operating
independently. The divisions had a lack of cross-functional planning and resource sharing. “In fact, it was not
unusual for five to six P&G salespeople to be at the same customer headquarters or retail store at the same
time” (Sebenius & Knebel, 2007). This reports agrees with the fact that a centralized sales team across the
P&G organization will help to further improve the relationship between P&G and Wal-Mart.

Tactical and Strategic Plans:

P&G and Wal-Mart implemented appropriately both tactical and strategic plans to address the
problems faced by the two partners. The tactical process involved implementing an Electronic Data
Interchange (EDI) and combating the bullwhip effect. This report feels that the primary issue facing P&G was
a supply and demand mismatch. P&G faced the bullwhip effect. “It has been observed that fluctuation and
distortion of information increase as it moves up the supply chain, from retailers, manufacturers, to suppliers”
(Sanders, 2012, p. 8). The tendency is for each stage of the supply chain to carry additional inventory or in
some cases stock out of inventory since upstream suppliers do not have visibility on sell through data. “If
there is no coordination or sharing of information, these stages do not know final customer demand or when a
replenishment order might arrive. As a result of this higher uncertainty, they stockpile inventory” (Sanders,
2012, p. 9). The result of the EDI system was positive between P&G and Wal-Mart. “P&G began directly
monitoring Wal-Mart’s sales and inventory and using the data to make its own production and shipping
schedules” (Sebenius & Knebel, 2007).
NEGOTIATING THE P&G RELATIONSHIP WITH WAL-MART 6

Industry Benchmark:
In 2015, Kantar Retail released results of the PoweRanking survey which found that P&G and Wal-
Mart maintain their number one leadership positions for over a decade. The benchmark study further showed
that Kroger and PepsiCo placed second-place while General Mills and Target placed in third place. The
complete PoweRanking for both manufacturers and retailers can be found in Exhibit 1 and Exhibit 2,
respectively. The survey is “based on how trading partners evaluated their performance across key areas of
their commercial relationships” (Kantar Retail, 2015). Exhibit 3 illustrates that P&G’s business with Wal-Mart
is valued at $10.68B or 14% of P&G’s total revenue while PepsiCo is $8.20B or 13% of PepsiCo’s total
revenue. This report agrees with the PoweRanking survey in that the steps taken by P&G and Wal-Mart over
the last decade have ensured a profitable and collaborative relationship.

Best in Class:
Both Wal-Mart and P&G were praised by their trading partners. “P&G was especially recognized by
its retail trading partners for its strong brands and its capabilities in aligning strategies in a shifting retail
landscape. As one major retailer noted: P&G is best due to the speed at which they respond to our new
strategies. It’s a very intentional move on their part – to quickly understand changes in strategy, thinking in
that language and moving to act on it” (Kantar Retail, 2015). Wal-Mart was praised by its vendors as “overall
best-in-class retailer due to its massive scale, sustained strength in logistics and operations, and recent
investments in digital and ecommerce capabilities that will help it ensure consistent growth and profit over the
long term” (Kantar Retail, 2015). This report disagrees with the fact that Wal-Mart is considered to be best in
class in its e-Commerce capabilities since consumers view Wal-Mart as a typical brick and mortar retailer
while Amazon continues to be the preferred online shopping method for consumers and businesses.

Conclusion

Procter & Gamble (P&G) and Wal-Mart went through a decade of understanding the obstacles that
each company and thus establishing a collaborative supplier-retailer relationship that has continued to this day
despite pressures of competition and eCommerce. This report agrees with the third party independent study
that states that P&G and Wal-Mart rank as number one in both industry benchmarking and best in class from a
brick and mortar perspective but the report disagrees that Wal-Mart is best in class from an eCommerce
perspective due to competition from Amazon. In spite of the eCommerce dilemma, P&G and Wal-Mart have
continued their supplier-retailer relationship.
NEGOTIATING THE P&G RELATIONSHIP WITH WAL-MART 7

References

Dittman, J. P. (2013). Supply chain transformation: Building and executing an integrated supply
chain strategy. New York: McGraw-Hill.

Kantar Retail. (2016). Walmart and P&G still #1 in Kantar Retail’s PoweRanking as Kroger,
PepsiCo and General Mills close in on the top. Kantar Group. November 4, 2015. Retrieved on
September 18, 2016 from http://www.kantarretail.com/walmart-and-pg-still-1-in-kantar-retails-
poweranking-as-kroger-pepsico-and-general-mills-close-in-on-the-top/

Kumar, N. (1996). The power of trust in manufacturer-retailer relationships. Harvard Business Review, 74(6),
92+. Retrieved from https://hbr.org/1996/11/the-power-of-trust-in-manufacturer-retailer-
relationshipsNassauer

Nassauer, S., & Terlep, S. (2016). Wal-Mart and P&G: a $10 billion marriage under strain.
The Wall Street Journal. June 14, 2016. Retrieved on September 18, 2016 from
http://www.wsj.com/articles/wal-mart-and-p-g-a-10-billion-marriage-under-strain-1465948431

Roberts, B., & Berg, N. (2012). Walmart: Key Insights and Practical Lessons from the
World's Largest Retailer. London, United Kingdom: Kogan Page Publishers.

Sanders, N. R. (2012). Supply Chain Management: A Global Perspective. Hoboken, NJ: John
Wiley & Sons, Inc.

Sebenius, J., & Knebel, E. (2007). Lou Pritchett: Negotiating the P&G Relationship with Wal-
Mart. Case: 9-907-011. Boston, MA: Harvard Business School Publishing.

Sebenius, J., & Knebel, E. (2007). Tom Muccio: Negotiating the P&G Relationship with Wal-
Mart (A). Case: 9-907-013. Boston, MA: Harvard Business School Publishing.
NEGOTIATING THE P&G RELATIONSHIP WITH WAL-MART 8

Exhibit 1

Manufacturer Benchmark
NEGOTIATING THE P&G RELATIONSHIP WITH WAL-MART 9

Exhibit 2

Retailer Benchmark
NEGOTIATING THE P&G RELATIONSHIP WITH WAL-MART 10

Exhibit 3

Brands that depend heavily on Wal-Mart for Sales