Since the beginning of this decade, The Procter & Gamble Company (P&G) has followed three primary growth strategies: 1) focus on P&G's biggest brands, countries, and retail customers; 2) develop faster-growing, higher-margin businesses such as beauty, health, and home; and 3) serve more of the world's consumers by accelerating growth in developing markets.

Each of these strategies has contributed to P&G's ability to deliver top-line growth at or above the company's targets for the past five consecutive years. And each of these strategies has implications for P&G's supply chain operations.

But it's the third strategy—growing P&G's business in developing markets—that puts our supply chain operating strategy to one of its biggest tests. We call this strategy the “Consumer-Driven Supply Network.” It's based directly on P&G's purpose: to improve the lives of the world's consumers. And it's tied directly to a deeply held belief at P&G that “the consumer is boss.”

With the Consumer-Driven Supply Network, we are building and operating P&G's supply chains “from the shelf back.” Today's consumers have more choices than ever, and those choices offer a broader range of value. The consumer-goods companies that win with consumers will be those who perform the best at two critical “moments of truth.” The first moment of truth is when a consumer stands at the shelf and chooses a brand to purchase. The second moment of truth is at home, when the consumer uses our brand and decides whether it lives up to her expectations.

The implications for the supply chain are clear. Historically, our supply chains have been internally focused on meeting cost and productivity targets. Our external focus was limited almost entirely to the second moment of truth—we measured how the finished product design and quality performed with consumers when they used it.

The challenge for today's supply chain leaders is to continue to deliver at the second moment of truth, while designing supply chains to better meet consumers' and customers' needs at the first moment of truth. The most important measure of how the supply chain works is whether our products are always there, always affordable, and always preferred by the consumer when he or she stands at the shelf and decides what to buy.

Measuring up to this challenge has gotten harder as P&G has gotten larger. In 2005, we announced the biggest merger in consumer products history. With Gillette, P&G is nearly a $70 billion company. We have 22 brands each with annual sales over $1 billion. In the United States, 99 percent of households use a P&G product. Globally, we serve roughly 3.5 billion of the world's consumers with more than 300 brands that touch consumers' lives nearly 3 billion times a day.

As P&G has grown, so have our supply chains, with more supply chains in more places around the world delivering an increasing number of products. Today, we're facing several competing priorities:

• Rising supplier costs vs. the need to meet the consumer value equation.
• Reaping the benefits of global scale vs. the need for local differentiation.
• Meeting the unique challenges of developed and developing markets.
• Serving large, global retailers vs. small, local high-frequency stores.

We're addressing these challenges by building a set of capabilities that create value for retail customers and consumers and drive growth for P&G's businesses. These capabilities fall into three areas: reliable service; agile, demand-driven supply; and affordable differentiation.

In terms of reliable service, we want to measure our performance through the eyes of the consumer as she experiences our products at the first moment of truth. This means getting the right product at the right place—on the shelf—at the right time. It also means understanding the quality of the product on the shelf (not just the quality when it left our manufacturing facility or distribution center) and ensuring products are priced to represent a good value to the consumer. Consistent, reliable service every day is an essential building block for any supply network.

With agile, demand-driven supply, we're focusing on reducing end-to-end supply network time by building a flexible and responsive supply network that is capable of producing what's actually selling, not what is forecast to sell. We believe we can dramatically reduce supply network time, which has significant cash benefits for P&G and retail customers. Furthermore, it translates to speed to shelf for promotional events and new product initiatives.

The third new area of capability P&G is building into our supply network is affordable differentiation—product, packaging, or supply chain solutions that help our retail customers better serve their shoppers. Pringles Prints is one example. We've created the ability to print a message on each chip, which we can customize for different retailers. Another example is our support for shelf-ready packaging in Europe, which we provide for those retail customers where there is a mutual business benefit.

These new capabilities—reliable service; agile, demand-driven supply; and affordable differentiation—are allowing us to better meet consumers' needs while creating new growth opportunities for our retail customers and P&G brands.

P&G's Consumer-Driven Supply Network strategy has sparked a fundamental culture change in P&G's supply chain operations. We've transformed from an internal focus to an external, end-to-end focus. Today, Product Supply consists of 70,000 P&G employees who each understand how their piece of the supply network affects the end consumer.

There's a clear reason why developing markets are so important to P&G's growth plans: 99 percent of world-population growth is occurring in developing markets. The consumer goods market in developing countries is estimated at $70 billion, and it will likely grow to $100 billion by the end of this decade.

A key challenge in developing markets is meeting the consumer value equation, or ensuring our products are “always affordable.” There's no clearer business case for designing supply chains that are consumer-driven than in developing markets. We must build in product affordability and reliability from the very start. This requires an entirely new mindset.

At P&G, it starts with how we develop products. Rather than automatically adapting a developed-market product so that it meets the value equation, we first seek to understand developing-market consumers and then create products that uniquely meet their needs at the right price. From the very start of the product development process, we look at the entire supply chain from the shelf back to develop a solution with the end price in mind.

Often, this involves innovative thinking about new sourcing or transportation solutions to keep costs down. For example, in India we've used tourist buses and even newspaper carriers as a distribution channel for getting our products to hard-to-reach areas.

We also have to be willing to change our thinking about our brands. For example, in one region in Asia, we struggled to make our Pringles crisps meet the consumer value equation, until we were willing to rethink the shape of the crisp. We determined it was the flavor of Pringles, not the double-curve shape, which was most important. By moving to a more traditional shape, we were able to produce the product at a lower cost and create a profitable Pringles business in that region.

Working hand-in-hand with Research & Development is critical for our global supply chain, but this linkage is tightest in developing markets. Our investment in developing low-cost products is wasted if our supply chain isn't low cost or can't reach consumers in more remote areas. In China, for example, we set out to create an overnight diaper for mothers who use cloth diapers during the day. We had to hit a very low price point—roughly the cost of an egg. To achieve this, we designed the product, the manufacturing process, and the supply chain simultaneously. We leveraged local sourcing, identified low-capital solutions, and combined local manufacturing techniques with our high-end technology to create a successful new product that now has potential to expand to other markets.

It all starts with understanding the consumer.

This brings me back to where I started. The most effective supply chains are those that are built around the company's business strategies and purpose. At P&G, my supply chain organization and all P&G employees share a common purpose —winning with consumers by improving their lives.