Industry Spotlight - Manufacturing & Distribution
Proctor and Gamble has recently made a shift in company strategy, closing several of its manufacturing locations. The shift is part of an ongoing drive to improve efficiency and lower costs. "We're constructing multi-category manufacturing sites in geographically strategic locations to replace smaller single-category sites," says P&G Chief Financial Officer Jon Moeller. Although the company has chosen to close several locations throughout the U.S., the manufacturing facility located in Box Elder, Utah will be expanding to take on the load of the recently closed locations. This expansion speaks to the strength of the manufacturing industry here in Utah. P&G will invest $500 million for the expansion of the paper manufacturing facility located in Utah, creating 200 new jobs. EDCUtah will continue to position Utah as a strategic location for many other manufacturing operations.
The full report of the changes and expansions is cited below:
Procter & Gamble’s worldwide manufacturing footprint is set to shrink to the smallest it has been in more than 20 years.
The Cincinnati-based company has sold or closed 17 factories around the world – including 12 in the United States – in the last five years. Next month, eight more P&G plants will become the property of a company that makes Rimmel makeup and Calvin Klein perfume.
P&G executives have assured investors the Coty Inc. deal will wrap up its two-year-long brand-selling campaign. But the company appears poised to shutter even more factories.
The shift is part of an ongoing drive to improve efficiency and lower costs. Ultimately, it means P&G's signature products, such as Tide detergent and Pampers diapers, will be made in fewer, but larger manufacturing plants.
The company has promised Wall Street another $10 billion in savings over the next half decade and has indicated a major piece will come from slimmed-down operations. CEO David Taylor said the cuts could be achieved without a “broad-based (jobs) reduction.” But to execute the plan, P&G is moving production to plants it is expanding with the intention of closing down others.
P&G's manufacturing overhaul has coincided with cutting 24,000 jobs worldwide through buyouts, divestitures, layoffs and attrition. Though P&G is hiring factory workers at some sites, nearly 10,000 of the jobs eliminated in the last five years were from its manufacturing network.
“Supply chain transformation is in its early stages," Chief Financial Officer Jon Moeller told analysts at a conference earlier this month. Right now, P&G is focusing on North America, before shifting in order to Europe, Latin America and finally India, the Middle East and Africa, he said.
In the United States, P&G closed factories earlier this year in Augusta, Georgia and Cayey, Puerto Rico; this summer, it announced a chemicals factory in Avenel, New Jersey would close in 2018 and be sold. The company owns three other chemical plants in North America, which are located in suburban Chicago; Sacramento, California; and the Ivorydale campus in St. Bernard.
More closures could be announced as P&G prepares next year to open a West Virginia factory that is currently under construction. P&G is spending $500 million on the new facility in Berkeley County, located in the state's eastern panhandle.
"P&G is really looking to maximize their efficiency with significant up-front investments in factories, but that means the closure of less-efficient plants in time," said Leon Loewenstine, chief investment strategist at Downtown-based Riverpoint Capital Management.
Besides the pending Coty deal, P&G has shed factories through its sale of the Iams pet food and Duracell battery brands.
P&G bulks up some plants, cuts others and uses robots
The company is spending a half-billion dollars to build a large factory in West Virginia's Eastern Panhandle and investing millions in expanding other plants.
P&G officials say the plant that’s as large as the Kenwood Towne Centre will make Pantene shampoo, Olay body wash and Bounce fabric enhancers as the company emphasizes facilities that can produce a variety of products for different business units. In Utah, P&G officials have said it is spending $500 million to double the size of its paper plant there and add 200 new jobs, but have not disclosed what other products will be made by the super-sized plant.
"We're constructing multi-category manufacturing sites in geographically strategic locations to replace smaller single-category sites," Moeller told analysts this month at the Barclays Back-to-School Consumer Conference.
Moeller added P&G is also P&G is automating production at the plants it is keeping to lower labor costs. He said the company is "aggressively expanding the application" of "collaborative robots" that now pack cases of product and wrap pallets for shipment. The company is also testing automated (self-driving) fork lifts.
Michael Magazine, a professer of operations and business analytics at the University of Cincinnati, said it's cheaper for a manufacturer to operate larger but fewer factories. It saves money on labor, equipment, utilities, supplies, maintenance and financing.
If a company chooses to run fewer plants, one critical issue is to create the capability to make all different products necessary, Magazine said. Another trick, is the right location: close to suppliers that provide necessary raw materials and close to customers who buy the end product.
"If you have more plants, you can move closer to your customers and you can be more specialized," Magazine said. "But if you can be flexible and switch production to produce different products, you don't need as many factories and you can save money."
P&G has signaled some of its North American factories will not only survive, but grow.
The company’s fabric care plant in Lima, about 130 miles north of P&G's headquarters, has already been expanded and the company said the Avenel operations will be consolidated there. Similarly, P&G’s Greensboro, North Carolina plant has picked up work from the now-shuttered beauty brand factory in Puerto Rico.
Moeller added that while P&G is spending a lot of money on factories now, savings will come.
"We're in investment mode now with savings to ramp up in two, three and four years," Moeller said.
The investment in added production North American capabilities comes as P&G has amassed an eye-popping $13.3 billion of cash and securities on its balance sheet, yet its U.S. sales are relatively flat at $27 billion.
P&G officials acknowledged the company’s ongoing review of its supply chain but declined to discuss specific potential factory closings for this story.
Company has virtually no manufacturing locally
Cincinnati has seen this before.
At the start of the millennium, Procter was in crisis. Sales growth was stalled, the stock had plummeted, CEO Durk Jager was ousted and investors were unhappy. Jager’s successor, A.G. Lafley, turned the company around through the sales of slow-selling brands and cost-cutting, then investing the proceeds into faster-growing core operations.
As part of this round of brand sales and cost-cutting, Lafley all but completely dismantled P&G’s ownership of its iconic Ivorydale manufacturing complex. The local Crisco plant became part of J.M. Smucker in the 2002 spin-off of the shortening brand; investment group Twin Rivers Technologies bought the Olestra fat substitute operations in 2002; and in 2003, the soap-making operation was sold to a Canadian manufacturer, Trillium Personal Care, which took over Ivory and Safeguard production on a contract basis.
Those deals left P&G with ownership of just a small chemical factory at Ivorydale – once the company’s largest complex. The local operation makes glycerin and employs 90 manufacturing workers.
Procter & Gamble's evolving U.S. manufacturing footprint
Aurora, Nebraska - Pet care
Fremont, Nebraska - Pet care
Henderson, North Carolina - Pet care
Leipsic, Ohio - Pet care
Russellville, Arkansas - Pet care
Cleveland, Tennessee - Duracell
LaGrange, Georgia - Duracell
Lancaster, South Carolina - Duracell
Hunt Valley, Maryland - Beauty care
Augusta, Georgia - Fabric care
Cayey, Puerto Rico - Olay
CLOSING IN 2018
Avenal, New Jersey - Chemicals
Berkeley County, West Virginia
RECENTLY EXPANDED OR EXPANDING
Box Elder, Utah - Charmin, Bounty
Greensboro, North Carolina - Secret, Old Spice, Crest
Lima, Ohio - Tide, Downy
OTHER U.S. FACTORIES
Albany, Georgia - Charmin, Bounty
Alexandria, Louisiana - Tide, Gain, Cheer
Andover, Massachusetts - Aerosols
Auburn, Maine - Tampax
Boston - Blades and razors
Cape Girardeau, Missouri - Baby care
Cincinnati - Chemicals
Dover, Delaware - Baby care
Green Bay, Wisconsin - Bounty, Charmin, Puffs
Iowa City, Iowa - Pantene, Head & Shoulders
Iowa City, Iowa - oral B
Kansas City, Kansas – Dawn
Mehoopany, Pennsylvania - Pampers, Luvs, Bounty, Charmin
North Chicago, Illinois - Beauty – chemicals
Oxnard, California - Charmin, Bounty
Sacramento, California - Chemicals
St. Louis - Febreze, Cascade, Mr. Clean