As I noted in my conference review, something very noteworthy may just have occurred at the CSCMP conference in Philadelphia, courtesy of Procter & Gamble.

P&G has been directly connected to almost every major overall supply chain innovation in the consumer packaged goods to retail sector, roughly in this order:

• Efficient Consumer Response
• Continuous Replenishment
• The Bullwhip Effect
• The Perfect Order
• The Two "Moments of Truth"
• Demand/Consumer-Driven Supply Chains
• RFID

They share the RFID role with many others of course, and it frankly is the one on the list that has yet to produce any real benefits for the company or other CPG firms. Maybe some day.

The only major innovation in the sector that I don't believe has strong P&G roots is Collaborative Planning, Forecasting and Replenishment (CPFR), which was concept first envisioned as best I can tell by consultants at then research firm Benchmarking Partners, who were then involved in a pilot between Warner-Lambert (later acquired by Pfizer) and Walmart (that pilot was actually just called CFAR). P&G was certainly an early participant, and you could argue CPFR has some real roots in P&G's continuous replenishment innovation, but think that one we'll credit to others.

Why this trip down consumer goods to retail memory lane?

Because in Philadelphia, Deirdre Wilson, associate director, customer service operations for P&G, did a presentation on "Beyond the Perfect Order," which rather amazingly presented the news that Procter & Gamble has now firmly established inside its supply chain operations a new metric framework: Service as Measured by Customer (SAMBC). I say amazing because this wasn't really hinted at in the session description, and could be a major inflection point again in supply chain history.

Like nearly all companies, while P&G certainly discussed its supply chain performance with its customers, internally it was really driven by its own metrics spread across all customers around cost, fill rate, on-time deliveries, etc. (As an aside, I was told by an insider that a powerful metric within P&G is something like "Cases not shipped because of warehouse" - if cases are shorted on a shipment that were actually in the DC, lots of alarm bells start going off and the warehouse manager gets real nervous. If it happens more than a few times, he or she can expect a visit from Cincinnati.)

With SAMBC, Procter & Gamble is now today measuring itself primarily based on how well it is performing against the individual performance metrics of all of the customers it has on the program. In fact, SAMBC is defined as:

The Percent of Customers for which P&G is meeting or exceeding all of those customers' unique expectations.

I believe that is a binary measure at the customer level, meaning missing just one performance expectation would lead to a miss on the measure for that customer.

So just to be clear, let's walk through this. Say P&G has 20 retail customers on the program. Each one of those has 3-5 core metrics. For each of these customers, P&G must hit or exceed each of those 3-5 measures. If they don't, it's a fail on a pass-fail measure. P&G could hit 4 out of 5, but score a zero for that customer. If they hit each of the metrics for 9 of the 20 retailers, the SAMBC score would be 45%.

Impact of the SAMBC Approach

There are several pretty important aspects to this, beyond that a company is really and meaningfully orienting their performance measurement systems this way.

First, SAMBC not only recognizes that customers vary in what metrics are most important to them, how those measures on defined, and what the levels of expectations are for each measure, it embraces that diversity. That is really the core of the concept - service as measured by [each individual] customer.

Wilson showed a real chart, with customer names removed, of about 10 retailers and what those core metrics were. I won't say they were all over the map (on-time delivery I think was on every list), but there was also a lot of variation in what metrics were included across the group. Even nearly universally embraced metrics such as on-time and fill rates were calculated differently by various retailers, and there were a variety of expectations. Some wanted 98% on time delivery, others 94%, or whatever.

Second , this obviously requires a very collaborative approach with customers. Many retailers did not immediately have answers as to what metrics, what levels, etc. During the discussion process, P&G of course discovered that how they and the retailers defined many metrics weren't the same.

Importantly, in the end this will/should force the retailer to think about this at a supplier and maybe even product category level. Maybe metrics and expectations for P&G will be different than for say fresh produce suppliers - I would think so.

And just for P&G, is it possible that toothpaste would have some differences in metrics/targets versus diapers? Maybe so. Vendors themselves of course set different service levels for A versus C items - but usually, that is often done without any real dialog with the retailer.

Most critically, these customer-specific metrics are not meaningful just at sort of the account management/customer logistics team level, but driven back through the supply chain from demand planning all the way to individual manufacturing sites. This is really the amazing thing. Plant managers will need to be aware of how they are performing not at an aggregate level, but at a customer-specific level, perhaps across dozens of customers. (I got the sense the program now was active at between 10-15 customers). This takes the concept of "order pegging" in manufacturing to whole new levels.

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By Stephen Gerrard
Vice President of Marketing & Strategic Planning
Voxware, Inc.

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