They come from Rick Sather, vice president of customer supply chain with consumer-products giant Kimberly-Clark Corp. And they suggest why some companies might not want to know the ugly truth about how they’re really serving – or not serving – the customer.
Not so with Kimberly-Clark. Over the past decade, the company has been engaged in an aggressive effort to uncover all of the shortcomings in its supply chain. The goal: to become truly demand-driven.
Sather sketched out Kimberly-Clark’s journey at the recent Global Summit of Supply Chain Insights in Scottsdale, Ariz. Guiding the organization, he said, was a set of classic lean principles.
It starts with manufacturing. Like many consumer-goods makers, Kimberly Clark has a lot of big machines. Classic operations theory calls for maximizing one’s investment in equipment by running at full capacity, for as long as possible. Whatever you do, don’t stop short to turn out small, specialized batches of product.
Which is precisely what Kimberly-Clark set out to do. Because the company exists in a mature industry, it needs constantly to be innovating its product line. The result is a raft of additional SKUs, of various colors, shapes and materials. To meet the demand targets for new products, manufacturing must become a lot more flexible. That’s a cornerstone of best practices in the automotive industry, pioneered by the Toyota Production System.
At the same time, Kimberly-Clark had to confront the issue of quality. In a lean regime, you can’t hide. All problems at the manufacturing stage are revealed. As Sather said, “We had benchmarked ourselves in a way that made us think we were really a good manufacturer.” The company’s lean initiative told another story.
Possibly Kimberly-Clark’s biggest breakthrough was realizing the importance of customer engagement. After all, said Sather, “Having a demand-driven journey is meaningless without outcomes. It’s got to be about business results.”
Of course, it’s one thing to talk about crafting top-line goals for supply-chain performance. It’s quite another to implement them throughout the organization. One key, said Sather, lay in the concept of “shelf-back replenishment”: starting with actual sales, then making sure that each preceding link in the chain is designed to support them.
When it comes to balancing out inventory at multiple retail locations, Kimberly-Clark appears to be taking a leaf from the apparel industry’s book. Take the case of a promotion that’s centered on a particular SKU. Once the event is launched, there’s likely to be too much inventory in some stores, and big stockouts in others. Kimberly-Clark has invested in systems that scrutinize retailer data, allowing it to respond to real-world purchasing patterns much more quickly than before.
Big-box stores dominate the retail world today, but Kimberly-Clark also works with small-format merchandisers to reduce stockouts and obsolete product. Sather cited one customer who, based on a single SKU, benefited to the tune of millions of dollars from the new program.
The journey is far from over. Kimberly-Clark is employing a new set of data analytics to capture activity at point of sale. It links directly to the data streams of approximately 18 major retailers, broken down by date, store location and individual SKU. Still, like nearly every other consumer-products supplier, the company lacks a complete understanding of demand.
“The bullwhip effect is alive and well,” Sather said, referring to the phenomenon whereby a series of small forecasting errors end up having a devastating impact on inventory accuracy. “We haven’t gotten past the ability to collaborate on demand to the point where we can match up demand and the flow of goods.”
The company is less shy today about encouraging customer behavior that results in that degree of alignment. Its newfound candor also extends to the greater use of customer segmentation, based on rigorous cost-to-serve modeling.
Every customer and SKU is being examined for its true cost and benefit to the manufacturer. “It’s on our road map, right now – to really get serious about it,” Sather said.
Back to that equipment-utilization problem at the plant. Sather said it was a question of realigning metrics to allow for smaller production runs. Previously, the term “over-production” wasn’t even in Kimberly-Clark’s vocabulary. “Making more,” he said, “was always better.”
Today, the company still tracks its cost per unit at the plant, “but we just look at it through a different lens.” Over the years, it has managed to reduce cost and waste by “many percentages,” with four times the number of equipment changeovers. U.S. inventory has reportedly has been cut by about $10m.
And what about sales, the 800-pound gorilla in so many organizations? How does one convince that function to align its metrics to serve the needs of the entire supply chain? To address the issue of sales forecast bias, Kimberly-Clark drew on the concept of customer engagement, with Sather’s team sitting at the table with sales executives. With access to metrics such as total inventory levels, they were able to put a stop to over-ordering.
“That’s a totally different view, versus five to 10 years ago,” Sather said. “We’re very focused on the outcomes we’re trying to deliver.”
Judging from results to date, Kimberly-Clark’s journey toward becoming a demand-driven supplier has been a clear success. The program has brought “multi-millions to our top line,” said Sather. The cost of obsolescence has plunged. And the company is “honing in” on aggressive goals for net sales, margin and cash.
Organizational change is always a challenge. The key to success is starting out slowly. “My challenge to my team was, find me small experiments where I can invest a little and see what kind of outcomes I can get,” Sather said. “If it’s proven out based on real results, it’s not a hard-sell story.”
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Keywords: supply chain, supply chain management, supply chain planning, retail supply chain, inventory management, inventory control, Kimberly-Clark