P&G's turnaround proves listening to customers pays

All companies say they value their customers, although many still give you reason to doubt that claim the minute you experience a problem with a product you already have purchased. Anyone working for that type of company who happened to attend the AMR Research Supply Chain Executive Conference

AMR has been hosting its annual supply chain conference for more than a decade, and this was at least the third consecutive year in which the concept of the demand-driven supply network (DDSN) was the central focus. A DDSN pegs all of its activities—particularly its product development and inventory management processes—to actual customer demand.

At this year's conference, there was ample evidence that manufacturers are adopting this model. There also was proof that operating a DDSN is a winning business strategy.

Much of that proof was contained in a report listing companies AMR has designated as its top 25 supply chain performers. The companies on this list have a number of things in common. They are household names—Dell, Nokia, PepsiCo, Anheuser Busch, Wal-Mart, and Home Depot—and they lead their industries in financial performance.

Procter & Gamble, ranked third among AMR's top 25, is a perfect example of what a DDSN can do for a business. When A.G. Lafley was named CEO in June 2000, P&G was losing market share in many product categories, and both its earnings and stock price were falling.

Lafley set out to change P&G's culture, first by insisting that it start listening to its customers. That was something Lafley himself started doing more than 20 years ago, when as head of P&G's laundry-detergent business, he went as far as asking customers for permission to install cameras in their laundry rooms so he could see exactly how they were using P&G products.

That caused P&G to design new packaging for its detergents when the cameras revealed that women who had told P&G executives that the existing packages were easy to open actually were using screwdrivers to punch holes in the boxes.

As CEO, Lafley still regularly visits P&G customers in their homes, trying to learn how the company's products can be made even more appealing. He also has P&G operating what it calls a CDSN (customer-driven supply network), its own version of AMR's DDSN.

A P&G supply chain executive I chatted with at the conference said Lafley (he called him A.G.) preaches about two "moments of truth:" when a customer chooses which product to buy in the store, and when they try the product at home.

From a supply chain perspective, that first moment is crucial. If your company's product is not on the shelf when the customer is making that choice, you won't get to that second moment, and you may never get another chance to win that customer. That's why P&G operates its CDSN, and others are adopting similar models.

How effective is this idea? Consider this: In the five years since Lafley assumed the top job at P&G, its earnings have increased an average of 17 percent each year while its stock price has more than doubled.