Value Chain Analysis of Procter & Gamble

A value chain and its activities

A value chain is the series of individual but linked activities performed by a firm that adds value that a firm’s customers are prepared to pay for. The principal events in Procter and Gamble’s value chain are divided into primary activities and secondary activities. Primary activities are activities that create a product or a service include, inbound logistics (acquiring raw materials), operations (Converting raw materials to finished products or services), outbound logistics (Getting them to customers), marketing (pricing and promotion), and after sale services. The Inbound logistics, operations and outbound logistics fall under the umbrella of Supply Management while marketing and after-sale services fall under Demand management. Secondary activities support these primary activities, and they include; procuring inputs, managing human resources (e.g., recruiting, compensating and training), and building infrastructures like financing, quality management, accounting, legal, and public relations.

Lowering costs through Information and Technology

Procter and Gamble can lower costs on any stage in its value chain through Information and Technology. The major reason is IT increases the operational effectiveness of a firm. IT can help the firm get maximum productivity out of its existing assets and people. The firm can eliminate unnecessary steps in its value chain by increasing the sales by encouraging its clients to purchase products online more often. By making more digital sales, the firm reduces the costs of running retail stores and paying employees as well as eliminating go-betweens hence saving money for the company and the clients too. Information Technology can also help reduce unsold inventory that could be stuck at a certain step in the value chain. It can also help the firm identify products that customers want most, as well as future projections of consumer needs thus helping it ensure the commodity does not run out of stock. IT can also help Procter and Gamble monitor service and support expenses more closely thus determining avenues through which the company is losing money or incurring unnecessary costs and how to remedy the situation. IT can prove to be critical in comparing market prices thus enabling the firm to adjust the prices of its products thus staying ahead of its competition. Advertising can be more efficient at a cheaper cost if IT is employed more aggressively in providing customers with automated notifications about company products. Use of customer self-care tools substitute human labor thus saving the company money.

Promoting value addition through Information Technology

Furthermore, Procter and Gamble can promote value addition at any stage of its value chain by transforming the content of any one step using Information Technology. Information Technology can match the firm’s products with customers who are more likely to purchase them. Matching products with the customer help inform the decision-making process during the manufacturing which translates to the products meeting the client needs and hence leading to more sales. Using online distribution of the firm’s products can lead to clients making pre-orders thus reducing cases of in-store wait times, a move that ensures the company capitalizes on its valuable products thus reducing losses. IT can also be employed in reducing the counterfeiting of Procter and Gamble’s products. The company can apply technology to help its customers identify authentic products before purchasing, e.g. QR codes and electronic chips. IT-based analytics can also help Procter and Gamble connect better with its clients. The company can follow up on its clients through social media to ensure they have received their purchased products as well as collect resourceful feedback from its clients about the products and service delivery thus informing areas that need to be improved to give the firm an upper hand on its competition.

Reconfiguring linkages using Information Technology

Procter and Gamble can use Information Technology to reconfigure the linkages between the steps of its value chain. Information technology can disintermediate firms from the Procter and Gamble’s value stream or coordinate steps within the firm’s value chain as well as with firms downstream and upstream in its value system. Disintermediation can eliminate unnecessary costs (hence reducing the firm’s running expenditure) and outdated perceptions of legendary industry structures thus enabling the company to connect with its clients effectively and more directly. Currently, Procter and Gamble relies on multiple forms of distribution of their products which involves a lot of other companies. The involvement of numerous firms in the distribution makes the product expensive to the consumer and minimizes profit margins for the firm. By employing more use of IT the company can reach more clients directly thus eliminating intermediaries. Information Technology can also help the firm in reducing the suppliers of raw materials as the firm can acquire them from different sources globally. Technology can help Procter and Gamble select the best and most affordable suppliers of their raw materials thereby reducing expenditure as buying raw materials in bulk from one supplier can prove to be more cost-effective than purchasing small amounts of the same raw materials from different suppliers located in different areas globally. Through coordination, IT can connect disparate parts of the firm that rarely communicate hence enabling the creation of the wholesome view of the firm. IT can also enhance Procter and Gamble’s coordination with the downstream firms that use its output as well as upstream firms that supply its inputs by aligning supply and demand. By doing so, the firm can focus on producing what the customers want and avoiding products that customers do not want. IT mitigates stock-outs of popular merchandise and unsold inventory, the two areas that massively erode margins. Information Technology can coordinate supply-related activities with demand-related activities respectively with upstream and downstream parts of the Firm’s value stream to accomplish this.

Conclusion

In conclusion, the introduction of agent-based modeling in Procter and Gamble’s operations systems has helped improve its performance. However, more use of Information and technology can help the firm improve its performance tremendously thus giving it an upper hand over its archrivals. Lowering costs can enable the company reduce its day to day operational costs. Increasing the value of a step in the value chain will allow the firm to meet the specific needs of its target market thus placing the firm ahead of its archrivals in service delivery, a move that will increase customer loyalty and the firm’s list of clients. Integrating Information Technology in Procter and Gamble’s value chain and value stream will ensure the effective running of the company and exponential growth in the profit margins of the firm. Reconfiguring linkages in the firm will help eliminate unnecessary steps in the value chain, increase communication and coordination in the firm hence enabling Procter and Gamble to make maximum returns from its investments.

References

Tiwana, A. (2017). IT strategies for Non-IT managers. Massachusetts: MIT Press, pp.54-66.