Proctor and Gamble 2016 Annual Report Download - page 8

Improving Productivity and Cost Structure
We continue to improve cost and cash productivity with significant upside ahead.
Productivity is the fuel for top- and bottom-line growth. We have delivered and
exceeded $10 billion in savings over the past five fiscal years across cost of goods
sold, marketing spending and overhead.
In cost of goods sold, our original target was $6 billion in savings over five years,
from fiscal 2012 to 2016. We delivered over $7 billion, with savings at or above
target each year.
In marketing spending, we have delivered strong savings over the last two years in
non-working agency fees and commercial production costs. We’ve been reinvesting
these savings in marketing programs that improve the reach, frequency or continuity
of our advertising, and in programs such as product sampling that generate trial
of our superior products.
In overhead, the decision to reduce enrollment was difficult, but was made with
careful consideration of what is best for the health of the business. Since 2011,
we have reduced non-manufacturing roles by about 25%, which is two-and-a-half
times the original target. Including divestitures, we’ll reduce non-manufacturing
roles by about 35% by the end of fiscal 2017.
Productivity cost savings have been essential to offset $4 billion of negative
foreign exchange impacts over the last four years. These savings have enabled
us to improve constant currency gross and operating profit margins and deliver
high-single- to double-digit constant currency core earnings per share growth
in each of these years.
We believe we can deliver up to an additional $10 billion in productivity
improvements over the next five years. As with the first $10 billion, we expect
the large majority of our savings will come from cost of goods sold.
Supply chain transformation is in its early stages. We started in North America.
Europe is following, and then we will move on to Latin America and India,
Middle East and Africa. We’re in investment mode now, with savings to ramp
up over the next two to four years.
More opportunity exists for savings in marketing spending, particularly in non-
working fees and production costs. We will also optimize the reach, effectiveness
and efficiency of media spending through the right mix of TV advertising and
digital — across search, social, video and mobile — to reach consumers when
and where they spend their time.
As we fully operationalize the new, focused 10-category company, there will be
additional opportunities to increase organization efficiency, agility and speed
of decision making.
Finally, we are working to improve the effectiveness of our promotional spending
by changing how we use these funds to give our sales teams more flexibility to invest
in what drives the most profitable growth. We see clear opportunities to improve
the effectiveness of promotional spending for us and for our retail partners to grow
categories and brands profitably.
Going forward, we expect to reinvest a significant amount of the productivity
savings back into the business. We’ll invest more in R&D, in product and packaging
improvements, in sales coverage, in brand awareness and in trial-building programs.
P&G wins when we create new categories and grow categories and brands.
These investments are aimed at delivering balanced top- and bottom-line growth.
iv • The Procter & Gamble Company