Q. A recent Wall Street Journal article touted the vendor-managed inventory program you have implemented with mass retailers like Costco, noting that it has benefited you as well as the retailers. How have you kept this a win/win arrangement, when many vendors complain that retailers are simply shifting cost burdens onto suppliers?
A. First of all, we don't do vendor-managed inventory with just any customer that happens to ask for it. We try to make sure up front that our participation in a VMI program will, in fact, be a win/win situation. Kimberly-Clark needs to gain, as well as the customer. If we are not able to identify those win/win opportunities then we decline to participate.

A lot of what other companies are playing back to you is fairly real, though. If a customer demands that a supplier take over the management of inventory without a careful analysis of what the opportunity really is or what it could be, I think you can get into situations that result in just what people have said - it can be a push-back of costs.

But our approach has been to use fact-based analysis. What we do is, go in and analyze our pattern of shipments to particular customers and look for opportunities where, with better information and, particularly, with collaboration, we can find ways to ship more cost-effectively and at the same time maintain their service at the high levels that they are accustomed to - as well as look for opportunities to reduce their inventories.

Q. You had mentioned that you moved into the supply-chain area because of an interest in reducing Kimberly-Clark's inventories. Has VMI helped reduce your inventories as well as that of your customers?
A. I would credit our VMI programs with helping us reduce inventory, but we have taken a number of other actions that have, frankly, provided even greater opportunities in that area. One of the biggest things that VMI does for us is to help us better understand our customer's demand profile - what their volume looks like on an SKU basis, on a weekly basis, and on a ship-to-location basis. That helps us to position our inventory more effectively. It also helps us to provide a better demand signal to our production planning teams.

Let me build on that and talk about collaborative planning, forecasting and replenishment (CPFR), because this is where we see the future of vendor-managed inventory at Kimberly-Clark. For our largest and most important customers, we will be using CPFR to co-manage the replenishment of our products. At this point in time, we have a number of customers that are in the process of implementing CPFR with us and the results so far have been extremely encouraging, from both the customer standpoint and from our standpoint.

One of the surprises that has come out of our work in CPFR is that it actually helps us on the revenue side. Initially, most people looked at CPFR as just another logistics or inventory management program, but the surprise has been that it helps us increase sales.

Q. That's because of better in-stock positions?
A. Absolutely. In fact, the collaboration process that you have to execute when you are working within CPFR forces a better sharing of information about inventory positions at the customer. For example, let's take a large customer that has a thousand or more stores. Oftentimes, just by accident or mistake, the availability of a particular product code might be turned off in a customer's system. Those things can happen during a changeover or through miscommunication - whatever the reason, they do have a tendency to occasionally happen. Within the CPFR process we tend to spot those things much quicker than we would before, so we can react very quickly to correct them and get the products flowing again. The result is higher in-stock rates at our customers and our work has shown us that our sales have increased.

And that, in turn, has helped some of our sales people really get excited about CPFR. To be honest, when we first talked about CPFR it wasn't high on the radar screen of our sales organization. But once we started to learn what it could do for us from a total business standpoint, we got a lot of people excited about it and that is what has helped position us as a leader in CPFR today.

Q. Is vendor-managed inventory a necessary step on the road to CPFR?
A. They are separate approaches but, in my view, VMI is a key stepping stone because to be effective with CPFR you need to have good executional capabilities. That's one of the things that we developed over the past several years with all of our work in VMI - the ability to execute very effectively. And that certainly helped position us to work well in the CPFR environment, where you go beyond just the execution and actually share forecasts. We share our forecast of demand with our customers. Our customers, in turn, share their forecast of demand with us. Those two forecasts are exchanged over the internet and the tools we are using now help us to very quickly identify gaps in information between us, and we can resolve those very effectively. A big part of CPFR is communication.

Q. Do you mean communication that can be accomplished electronically or does communication still need to take place person to person?
A. I would say it is both. The communication of data is extremely important and that is the part that occurs electronically. The person-to-person communication is that which helps us to quickly resolve problems. We might see an opportunity looking at the data and then we act on that opportunity by communicating with the right people. That's the other part of CPFR that I think is really exciting. It enables communication between a customer and a supplier at the right level. You have a replenishment person talking to a replenishment buyer.

Q. What about on your supplier side. Are you also working on implementing collaboration there?
A. Absolutely. We already have established eight different pilot efforts with our suppliers. So far these have shown that by using better communication of more timely and more accurate information, we are actually able to achieve results like significantly lower inventories between the companies. We have taken out system inventory, not just pushed the inventory back to the supplier but eliminated good chunks of it altogether. Another benefit is that having a good clear communication about what our demand really looks like for a particular item has helped some of our suppliers actually put together more efficient production schedules, and that has lowered their costs.

One of the other things we have found about supplier communication - and you will hear me say communication over and over again because I think it is the key to managing the supply chain - is that getting the communication to occur on a timely basis at the right level in both the supplier's and manufacturer's organization really helps to get results.

Q. You don't find a reluctance among trading partners to share critical information or the right kind of information?
A. I would say that every supplier relationship is a little bit different, but that situation is getting much better. We still have to get to a point where supplier and manufacturer trust each other, trust that the information we share is not going to be used solely as a stick to drive prices down even further. Of course, at the end of the day we are looking for opportunities to take unnecessary costs out of the supply chain, but in my opinion sharing information and communicating effectively in a relationship where there are win-win opportunities and good trust established is the key to getting that result.

Q. What do you view as your greatest challenge in the year ahead with respect to supply-chain and logistics operations?
A. I think the greatest challenge we have is to stay focused on making improvements, while meeting our customers' needs every day. I think that is probably a challenge most companies face. Our No. 1 mission is to make sure that our customers are getting the products they want, when they want them and at a good value. And at the same time, while we execute that every day, we also need to be looking for new and better ways to operate so that we can, in fact, take more costs out. That balancing act is probably our biggest challenge.

At Kimberly-Clark, supply-chain management has become synonymous with business management, which is extremely important. My personal view is that managing the supply chain is, in fact, managing the business, and there are certainly more elements than just logistics. If a company looks at supply-chain management as a logistics opportunity only, they will fall far short of realizing all the gains that are out there.

Q. You have talked a lot about cost containment, but is the supply chain at Kimberly-Clark also being seen as a way to increase top-line revenue?
A. I've mentioned increased sales through CPFR and that's one opportunity where we have a proven success. The next opportunity to grow the top line is a little bit longer-term in nature and it comes down to this: If we, as an organization, truly understand how to work together to create value, then this working together across the supply chain will give us a competitive advantage because we will be able to produce superior products, which is part of our strategy, at an extremely good cost. And that position, essentially, makes our products a better value in the marketplace and hopefully makes our company a better value to shareholders as well.

Q. What about your e-business strategy?
A. At this point we are closely watching what is going on with the B2B marketplace, but we are not actively involved. We have chosen not to participate at this time in things like purchasing exchanges. As we've looked at it, we see that a lot of what appears to be the early opportunity is for companies that have not gotten a handle on their purchasing activity and perhaps have individual units or facilities buying things on their own. The exchanges give them the opportunity to basically create a centralized buying environment. We've already done some of these things; we started implementing centralized purchasing in the mid-80s. So at least for now, we feel that we already have gotten a good share of the benefits that a lot of people are claiming. Now, that said, we continue to monitor the activity very closely because there still may be more things that we haven't yet considered. At this time we are taking a wait-and-see approach.

I think the coming year will be a watershed year because this is when many of the exchanges, particularly in the consumer packaged goods industry, will really come into operation - whether you look at those that are being set up by manufacturers or those that are being set up by retailers. That will be something that we will have to watch very closely to see and understand how companies are truly going to be able to generate value by using these exchanges.

Q. What are some of the challenges relative to the global nature of your supply chain?
A. These are largely related to managing our business on a more global basis. We have efforts within our company where we get people together from our various regions around the world and those people collaborate internally, particularly around supply. We have a team we call our global sourcing team that works very well together in terms of identifying opportunities to leverage Kimberly-Clark's scale and our business to create better value.

We don't have as many trans-regional transactions as many companies but we do have some, and one of the challenges we have there is to manage information systems. We are in the process of implementing several regional solutions with SAP and we also have a team that is working on ensuring that we have common data globally, to allow us to leverage that data. So although we are working on regional implementation, we are coordinating those activities, and when we are done we will be positioned with the right kind of data and data structures to be able to take advantage of global opportunities.

Q. What do you think is the weakest link in the supply chain?
A. I would say that our connection with suppliers has been a weak link although with the program that I referred to earlier with our collaborative supply planning activities we are working very hard to strengthen that link.
Q. In your career, what has been your most significant learning in terms of supply-chain management?
A. For me personally, it has been seeing the very clear connection between finance and the supply chain. I have been very fortunate, having a financial background and then learning more about the supply chain, to be able to apply what I learned in finance to supply-chain management. Again, going back to my earlier statement that supply-chain management is business management, we are managing the supply chain to get better results for everyone - for customers, for shareholders, etc. As we move our initiatives forward, we find that our teams are learning much more about the rest of the business - more about marketing's contribution, about research and development's contribution, about operations' contributions and about logistics' contributions. The more people are sharing those learnings, the stronger we get because people now have a better understanding of how to make trade-off decisions.
Q. What are key survival skills for a supply-chain professional today?
A. I think that is a key survival skill - knowing when and where to make good business tradeoff decisions. Too often in our past we managed each individual function or each individual piece of the supply chain independently. Now, managing it as a whole requires that we make good tradeoff decisions.
Another key skill area that is important for people in supply-chain management is communication - all forms of communications - verbal skills, written skills, presentation skills, all of those are important. Also it's important to be open to someone else's position and needs and to be able to clearly communicate and articulate what your needs are, so that you can actually work together and come up with a good solution.

One of our core values at Kimberly-Clark is teamwork. That is a very over-used term, but we feel that teamwork really works for our company. It is a strong part of our culture and has served us extremely well as we move into an environment where we are collaborating more.