CIO: How did the relationship between Wal-Mart and P&G start?

Drayer: Who knows who really pushed it, but there was a mutual recognition that there had to be a better way to do business. The way we were working together was not only frustrating, time-consuming and expensive, but we knew both companies could benefit from working with their largest trading partner in a different way.

I had the good fortune to be in the first meeting, which was in 1987. We approached this on the basis of total quality. We used that as a framework for figuring out how we were each organised and how could we work together.

I remember Sam Walton saying:"The way we do things is way too complicated. You should automatically send me Pampers, and I should send you a cheque once a month. We ought to get rid of all this negotiation and invoicing." That was his vision. It just so happened that we had been piloting a continuous replenishment process with another retailer, purely as a logistics project to drive down the landed cost and their acquisition cost. So I had a capability that we had developed, and I mentioned that maybe here was a good place to start. So that began the new working relationship. We began replenishing their inventory using this new computer-to-computer tool and established some incredible results in terms of improved service levels and reduced inventory.

But the biggest benefits from this were the soft benefits. It really built a foundation for a collaborative trading relationship that eventually went beyond logistics to include sharing consumer information and shopper loyalty card data. It was incredible.

CIO: Who was the retailer you had been working with before Wal-Mart?

Drayer: Kmart.

CIO: And yet we hear nothing in the legend about Kmart.

Drayer: Well, there's a reason for that. The Kmart project was started to drive down their acquisition cost of nappies. But the difference at Kmart was that it was just a distribution project; it wasn't a strategic project to really, fundamentally change the trading relationship. It was always just something that was run by the distribution people. And it worked too. I mean, my gosh, they had dramatic improvements in landed cost, which could be reflected in lower pricing for nappies at the stores. Their in-stock was better, and they eventually saw continuous replenishment as something they wanted to extend to all their suppliers. And they did. But it didn't become the foundation for a fundamental change in the trading relationship until much later.

CIO: So this is one of those turning points where you can look back and say this is the one that missed the boat and this is the one that made it?

Drayer: I think so.