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P&G CUTTING WORKFORCE BY 12% WORLDWIDE AND CLOSING 20% OF FACTORIES

This article was originally published in The Tan Sheet

Executive Summary

P&G CUTTING WORKFORCE BY 12% WORLDWIDE AND CLOSING 20% OF FACTORIES under a streamlining initiative designed to save the company $ 500 mil. after taxes by fiscal 1986. Announced by Procter & Gamble on July 15, the restructuring and plant consolidation program involves a reduction of 13,000 positions, or 12% of P&G's 106,000 worldwide workforce, and the closing of approximately 30 manufacturing plants, which amounts to 20% of the company's 147 factories worldwide. The savings from the reduction program are expected to give P&G additional latitude in competing with private label and other lower-priced products on price. At a July 15 meeting for securities analysts at the company's Cincinnati headquarters, P&G Chairman and CEO Edwin Artzt said the company's "objective is for these savings to improve our profit growth by either bringing them directly to the bottom line or investing a portion in lower pricing to build volume and share growth." Artzt declared that "there is no such thing as loyalty at any price, and there never has been." Consequently, he said, "we have . . . rededicated ourselves to the strategy of consistently providing consumers with superior performing products at competitive prices." P&G, he added, intends "to pay strict attention to pricing gaps versus low priced competition in order to make sure that these gaps truly reflect our advantages in performance and quality, and do not include inefficiencies or higher costs that will ultimately not be willingly borne by our consumers." Emphasizing the growing stature of private labels, Artzt pointed out during Q&A that private label and discount brands held a 21% dollar share in the 32 categories of consumer products in which P&G competes during the six months ended in May -- up a full share point over the same period a year before. In an effort to narrow price gaps, P&G initiated a lower- pricing strategy in November 1991 and expanded this policy to 40% of its U.S. business last spring. Product areas affected to date include laundry and cleaning products, diapers, health and beauty aids, and food and beverages. The most recent round of price cuts will lower pricing on liquid laundry products by 3%-15% beginning in August. Artzt said that the company has been able to recoup all the potential revenues lost by lowering prices. Since price reductions began, P&G has decreased prices by a total of $ 1.6 bil. on U.S. products -- $ 1.2 bil. of which was recouped by reduced promotional spending and $ 400 mil. was made up by reduced costs, Artzt said. Although the company is reducing its promotional spending, ad spending will continue to increase, P&G indicated. Ad expenditures were up 5% worldwide in fiscal 1993. P&G will take a one-time, after-tax charge against earnings of $ 1.5 bil. in fiscal 1993 (ended June 30) to cover the costs of the plant consolidation and workforce reduction plan. Approximately $ 1.2 bil. of the total has been allocated for the plant closings and the remainder for activities associated with a multifunctional review program known at the company as the "Strengthening Global Effectiveness" (SGE) initiative ("The Tan Sheet" July 5, In Brief). Under the SGE program, P&G plans to reduce layers of management and broaden managers' responsibilities in addition to "simplifying" certain work processes, such as the company's ordering system. The SGE initiative also includes an effort to standardize systems and procedures worldwide, such as centralizing the company's global raw material purchases and reducing the number of different computer systems and copy machine models used by the company around the world. P&G said it expects to implement the SGE initiative in less than two years. P&G's fiscal 1993 earnings also will be affected by a $ 925 mil. set-aside to retroactively adopt, effective July 1, 1992, financial accounting standards No. 106 and No. 109, which involve retiree health benefits and deferred taxes. Together, the restructuring reserve and accounting changes will reduce fiscal 1993 net earnings by $ 2.5 bil., P&G said. The company predicted that, excluding the charges, earnings would have increased by double digits to over $ 2 bil. after tax in fiscal 1993. P&G's year-end figures will be released in August. Half of the workforce cuts will result from the plant closings, the locations of which the company expects to announce in November. Of the other 6,500 cuts planned under the SGE program, 4,000 will be made in the U.S. workforce of 47,500. Half of the U.S. reductions will occur in the company's Cincinnati headquarters. The plant closings are slated to occur over the next three to four years. The company attributed its decision to close the factories, in part, to the need to consolidate recent acquisitions. The company said its focus on global brands, common formulas and packaging will require fewer manufacturing operations. Since 1982, P&G has acquired 79 new plant sites and has closed 24. P&G also indicated that it is making an effort to eliminate non-value-added costs. These efforts include developing more efficient links with trade customers and the elimination of less productive SKUs. P&G Executive VP Durk Jager told the analysts that "we are well on our way" to reducing SKUs by the firm's 25% goal. The number of P&G SKUs is down 17% from two years ago, Jager said. He noted that for every new SKU introduced by P&G, at least one old SKU is eliminated.
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