Changing the Game in Strategic Sourcing at Procter & Gamble: Expressive Competition Enabled by Optimization

  • Authors:

  • Tuomas Sandholm;David Levine;Michael Concordia;Paul Martyn;Rick Hughes;Jim Jacobs;Dennis Begg

  • Affiliations:

  • CombineNet, Inc., Fifteen 27th Street, Pittsburgh, Pennsylvania 15222;CombineNet, Inc., Fifteen 27th Street, Pittsburgh, Pennsylvania 15222;CombineNet, Inc., Fifteen 27th Street, Pittsburgh, Pennsylvania 15222;CombineNet, Inc., Fifteen 27th Street, Pittsburgh, Pennsylvania 15222;The Procter & Gamble Company, Two P&G Plaza, Cincinnati, Ohio 45202;The Procter & Gamble Company, Two P&G Plaza, Cincinnati, Ohio 45202;The Procter & Gamble Company, Two P&G Plaza, Cincinnati, Ohio 45202

  • Venue:
  • Interfaces
  • Year:
  • 2006

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Abstract

Procter & Gamble put into practice CombineNets approach to building sourcing networks, called expressive competition. At its heart is a vision that looks past lowest-price reverse auctions and combinatorial package bidding toward a highly expressive commerce relationship with suppliers. It enables suppliers to make electronic offers that express rich forms of capabilities and efficiencies. As the buyer, P&G also uses an expressive language to state constraints and preferences. The detailed expressions of supply and demand are brought together via an advanced optimization engine to decide the optimal allocation of business to the suppliers. By March 2005, over a period of two and a half years, P&G had sourced over 3 billion through expressive commerce and seen 294.8 million (9.6 percent) in recommended savings. In the process, P&Gs suppliers benefited from the win-win approach: expressive competition matched demand to the most efficient means of production (rather than squeezing suppliers profit margins) and removed the exposure risks in making offers. Beyond direct monetary savings, the benefits included the redesign of supply networks with quantitative understanding of the trade-offs and the ability to implement in weeks instead of months.