P&G Expressive bidding and methodologies

1. Changing the Game in Strategic Sourcing at P&G Expressive Competition enabled by Optimization Dinesh Pradeep | Ramakrishna krishnaswamy | Sunayan Pal Lavanya Divi | Arun Kumar S | Amit Kumar

2. Two moments of truth Was the experience satisfying enough? Will it be a P&G Product?

4. Slow

5. Lacks Transparency

7. Optimal bundling based on suppliers preferences and not buyers

8. Side constraints not supported

9. Buyer cannot express business rules

10. Suppliers cannot express production efficiencies – Exposed to bidding risks

11. Amount and type of information provided by suppliers reduced

12. Suppliers forced to cut their profit margins

13. Suppliers not allowed to compete on their strengths through collaboration with the buyers

15. Limiting the total number of suppliers

16. Bundled Offers

17. Conditional Volume Discounts

19. Expressive Competition Expressive Competition – The Paradigm Shift Expressive Allocation Evaluation Expressive Competition Expressive Bidding

20. Expressive Bidding Suppliers bid on an arbitrary number of self constructed package of items Suppliers offer rich forms of discount scheduling Suppliers can offer conditional discounts Suppliers can specify a broad variety of side constraints Suppliers can bid using attributes Suppliers can express free-form alternates Suppliers can express detailed cost drivers

22. Operational Constraints

23. Legal Constraints

24. Business Rules

25. Prior Contractual Obligations

26. Other Business CaveatsCarrier X has to win at least $3 mn Minority Suppliers should win at least 15%

27. Benefits Buyer can update constraints from its business rule databases Buyer obtains a quantitative understanding of the tradeoffs between sourcing cost and other considerations Helps align the members of the sourcing team as the negotiation is based on facts rather than beliefs

28. Pre-packed Displays Retailer used prepacked display to merchandise their products Display can have different sizes of one product or contain multiple products Suppliers would design, procure and assemble turn key displays P&G Spend $140 million annually in north America on display Little visibility into the costs and quality of alternate methods Cost tradeoff between buying traditional turnkey display and buying components Case Study – Sourcing of Displays P&G –CombineNet Team to the rescue..!!

29. Process P&G want the annual spending on display to be more efficiently utilized supplier base while improving quality , reliability and services. Three key elements : Bidding structure to capture component specific information Simple way for suppliers to understand and participate in the bidding process To enable P&G product managers to embrace the new process Reduce cost Supplier were asked for : Bid on specification Off specification bid ( use 3 colour printing in place of 4 colour)

30. Detailed Information on the costs collected..!! Corrugated film , Paper, tray Supplier offer: Piece price, Fixed &variable cost Assembly rate Packing, fright

31. Sourcing Event 40 Suppliers Manufacturers only Assemblers only Manufacture and Assembler Two online rounds followed by one round of off-line negotiation Supplier goes for Component based bidding and Unique expressive bidding Bid on their own term Volume discount Bundles pricing Alternate product and services

33. Suppliers submitted two bids

34. Full turnkey displays

35. Services that could be supplied directly

36. Greater business insights

40. Submitted 33 conditional discounts and six discount schedules

41. Carriers to bid on both P&G’s and retailers trucking lanes

42. 550 Scenarios navigated before settling with the final bid

44. Unconstrained savings by Expressive bidding around 16.9% ($517 mn)

45. Implementable savings ended up at 9.6%

46. Savings by Category

47. Transportation – 3.6%

48. Packaging – 23.3%

49. Services – 29.8%

50. Raw Materials – 10.9%

51. Indirect Materials – 23.9%

52. Improved Supplier Relationships

53. Greater Supplier Participation in Sourcing

54. Solutions that satisfy operational constraints

55. Alignment of stakeholders in the buying organization

56. Suppliers participated in Expressive competition recommend it to other buyers

57. Suppliers who boycotted reverse auctions returned

59. Expressive Competition – Much Richer problem – NP hardOptimization Techniques

60. Optimization Technology REV uses sophisticated tree-search algorithms CombineNet invented host of proprietary techniques Great deal of effort in developing techniques that deal with side constraints REV supports all the side constraints by abstracting them into eight classes (from an algorithmic perspective) CombineNet invested considerable effort on stability i.e. techniques that are robust Incorporated its technology in ClearBox, a back-end clearing engine

61. Hosted Mode Packaged technology for use by domain experts, not optimization experts Much faster and less error prone than traditional mode Web based products and Application-Service-Provider (ASP) make optimization available on demand REV supports different form of expressiveness Sealed-Bid Events Live Events

62. Scenario Navigation Organization with departments having different preferences Buyer specify a set of constraints and preferences to find optimal allocation Rapid clearing time allows the buyer to explore the side effects of various side constraints and parameter settings Automated Scenario Navigation – Next generation REV Incremental transition from traditional sourcing to expressive competition possible by REV