P&G has been struggling against rising costs and slow sales growth since 1999. Now it will accelerate its restructuring plan, cutting its workforce by 9% with expected cost savings of $400-700 by fiscal 2004. Cost cutting looks like a sensible move for the company, but given the threat of global recession these moves might be just the beginning.
P&G, the Cincinnati-based multinational producer of products including Tide, Pampers and Crest, saw its sales increase just over 4% in fiscal year 2000 and fell 4% in the first six months of fiscal year 2001, so the job cuts come as no surprise to the industry. They're an extension of a previous cost-cutting program from 1999 called 'Organization 2005', which will see 7,800 job losses by 2005. The total job cut tally between 1999 and 2005 will be 17,400, 16% of the company's workforce.
Procter & Gamble has long struggled to boost sales growth, however, with a stagnant market the company has also needed to consider and implement cost cutting procedures in its restructuring plans. The job cuts, 40% of which will be in the United States, are likely to cost the company up to $1.4 billion after tax. However, they are expected to reduce overhead and manufacturing expenses, saving an aggregated total of $400-700 million by 2004. The firm has not ruled out further cuts, saying it will continue to review its cost-cutting options
Recent weeks had spawned rumors that P&G was about to announce sweeping job cuts of as much as 20% of its total workforce. Although the final announcement reflects figures lower than many expected, it is confirmation that P&G recognizes the need for drastic action to survive in a static market and weather the global recession that many are convinced is looming. CEO A.G. Lafley commented "This program is right for the long-term health of our business and is the next step in our plan to restore long-term growth."
With the threat of recession across the world's developed economies and continued economic difficulties facing many of the company's core markets in developing countries, including Turkey, P&G's twelfth largest sales territory, the restructuring moves make sense. The company seems to have little choice but to 'hunker down', focus on its core brands and make itself as lean as possible to weather the storm.