Kimberly-Clark and Reducing Supply Chain Complexity
June 20, 2011
Dan Gilmore, Editor-in-Chief of Supply Chain Digest, writes that he once heard a PepsiCo supply chain executive declare, “Complexity is like a cancer that destroys supply chain efficiency.” [“Supply Chain Complexity Crisis,” 12 June 2008] In a world that is continually growing more complex, one would think that supply chain efficiency is getting worse by the day. Thanks to technology, increasing complexity can be dealt with in a number of ways. A recent post by Steve Banker discussed how the Kimberly-Clark Corporation reduced the complexity of its transportation management system (TMS) and made the whole process more efficient and effective [“Kimberly-Clark: Using Lean to Improve TMS Performance,” Logistics Viewpoints, 23 May 2011]. Before getting to that story, however, I’d like to return to Gilmore’s discussion about complexity.
Back in 2008, Gilmore wrote, “Re-optimizing the supply chain – there’s a lot of that going on right now.” [“Kimberly Clark Rethinks Its Supply Chain,” Supply Chain Digest, 4 September 2008] He indicated that there were three themes that ran through much of transformational changes that were taking place. They were:
“First, there is a startling recognition that the world has changed rather quickly – and that the supply chain has to catch up quickly. For many companies, especially large consumer goods manufacturers, that change doesn’t always come easy — long standing histories, traditions and paradigms — significant physical assets in terms of plants and DCs that serve as financial and psychological barriers to change. But the pressures of late have become so great that the need to change has become urgent –- and paradigms will have to be broken. In the face of that urgency, for example, Hershey last year announced that it would outsource chocolate production as an element of a massive supply chain network reorganization.
“Second, companies are also urgently looking to increase agility. Large, asset-heavy networks have a hard time moving fast. That leads to supply chain network moves that increase the level of outsourcing and network designs that are less complex, and hence, less cumbersome.
“Finally, no one is sure what the path will be for fuel and commodity prices – but many companies are doing what they can to take network costs out to offer some level of protection in case those costs continue to head North.”
Nearly three years later these “themes” remain fresh and important. This year fuel and commodity prices have been headline grabbers. The Kimberly-Clark transformation story goes back even further than 2008 to 2004. Gilmore learned about Kimberly-Clark’s efforts during an interview with Mark Jamison, the company’s Vice President of North America Customer Supply Chain. He indicated that in 2004 the company decided to refresh its supply chain strategy (a process “it calls its ‘supply chain of the future’ transformation”). As part of that process, Kimberly-Clark personnel spent time with the company’s customers and retail partners in order to understand their supply chain objectives and goals so that Kimberly-Clark could match its supply chain capabilities against those goals. Jamison told Gilmore, “Our retail partners told us three things –- help us improve customer service and reduce out-of-stocks, help us take inventory out, and help us reduce cycle time — three of the key priorities they shared with us.” [“Kimberly Clark’s Mark Jamison on ‘The Supply Chain Network of the Future’,” Supply Chain Digest, 9 September 2008] Gilmore continues:
“While KCC felt it has always had a superior supply chain, it would be ‘hard to make much additional progress’ against those goals with its existing network, Jamison said. ‘First and foremost we wanted to become more flexible with our supply chain design, and secondly we wanted to realize significant cost savings,’ he added. The existing KCC network included some 70 mostly smaller DCs in the US that were associated with nearby manufacturing plants. A network with 70 DCs is almost by definition complex, and meant, in general, KCC could only send customers a limited percent of its full product line, based on manufacturing plant, in any individual shipment. Additionally, KCC, like many other companies, also decided it needed to make itself more ‘demand-driven.'”
Jamison and his colleagues decided that they needed to what many supply chain analysts recommend — redesign the supply chain from the outside in. In Jamison’s words, “We wanted to redesign our supply chain from the shelf back, while our supply chain had really been designed from our manufacturing assets forward. We wanted to integrate key business processes and systems so that we were highly integrated both with our partners and suppliers and could create end-to-end visibility within the supply chain.” Gilmore continues the story:
“With those objectives in mind, Jamison said the company did some ‘intense network modeling’ –- a process that took about nine months. Part of that that time was spent using an informal group of advisors –- experts in the industry from several disciplines (academia, logistics service providers, etc.). … That’s a smart idea I have not seen many companies do. In parallel to the network design, KCC also began work to improve its visibility to actual consumer demand. That included being an early leader in looking at the potential for RFID, and acquiring some new technology to help better understand and monitor what was happening at the store shelf.”
Obviously, you cannot be demand driven if you can’t sense demand in the first place. Jamison insisted that Kimberly-Clark wants “to use POS to completely drive our replenishment production planning process.” Gilmore continues:
“A really fascinating aspect of this to me is the change in KCC’s thinking on ‘dynamic sourcing.’ For KCC, that meant the ability to assign production to the facility that seemed to offer the best total supply chain cost and service trade-off at the time — an approach the company had used for years, and which it believed gave it some competitive advantage. In a time when being more ‘dynamic’ seems almost like a no-brainer, Jamison said their analysis showed that there was a bigger price to pay for that ‘flexibility’ than anyone realized. … ‘What we have found is the dynamic sourcing model creates so much variability, and variability is the virus of the supply chain,’ Jamison said. ‘What we didn’t really understand is that actually our fixed sourcing model can drive significant savings because we have taken a lot of that variability and complexity out.'”
A number of supply chain analysts continue to insist that flexibility is critical for future supply chains. Kimberly-Clark’s experience adds a note of caution that companies should be careful about where they look for flexibility and what the costs may be. For more discussion on the topic of flexibility, read my post entitled Supply Chain Flexibility and Transparency. Gilmore noted that Kimberly-Clark was closing most of its 70 distribution centers and replacing them with “nine large ‘mixing center’ facilities.” These mixing centers improve efficiency, lower inventory stocks, and increase customer satisfaction because “they can now order the full product line and receive it on a single shipment.” Gilmore also reports that the mixing centers lowered “total transit times to customers, and reduced transportation expense. … KCC saved 2.7 million transportation miles in 2007 over 2006, and 2.4 million gallons of fuel.” That brings us back to Steve Banker’s article mentioned at the beginning of this post.
As part of its “supply chain of the future” transformation, Kimberly-Clark implemented a new transportation management system. Banker reports:
“Kimberly-Clark purchased its TMS three and a half years ago from i2 (acquired by JDA last year). The company does centralized planning for North America out of Knoxville, Tennessee, where it plans 2,500 outbound loads from 40 origin points. The loads flow from plants to distribution centers (DCs), plants to customers, and from DCs to customers. All 2,500 loads are touched multiple times.”
Every “touch” adds complexity to the system — and, whether you consider complexity a virus or a cancer, that’s not good. According to Banker, the company believed that its high-salaried transportation analysts could be more efficient and effective. It felt “those analysts were spending too much time clicking through the [TMS] application rather than doing value-added work.” That makes it sound like the analysts were “surfing” or goofing off. That was not the case, they were looking for ways to improve transportation allocation. Believing it could do better, “Kimberly-Clark applied the Lean continuous improvement process to its [TMS].” Banker continues:
“Planners perform two global planning optimizations runs per day, one at 4-5 am and the other at 8 pm. Prior to the Lean project, planners would come in at 8 am, log in to the TMS and see that they had about 100 loads to review and plan for the next optimization run. About 70 of the loads were typically fine. Those would be accepted, which involved a whole series of clicks. The other 30 loads would require changes based on business rules in the planners’ heads, which were not fully modeled in the application. After those changes were made, the planners would set the loads to plan, which involved a click for each load. And for loads going to Kimberly-Clark destinations they would make calls to set up appointments and click through a series of tenders for those destinations. On a perfect day, a planner would be done by 9 am. But there were few perfect days. A planner might have 15 emails describing problems from the previous day, phone calls from customer service representatives, and meetings to attend. On many days, loads would not get tendered for three or four hours. The non-value added work meant that planners had limited time to perform more strategic forms of analysis. Further, Kimberly-Clark has a history of making acquisitions. If more acquisitions were made, the company wanted to increase the number of loads it could manage without increasing the number of planners.”
One implication was clear from Banker’s description, those “business rules in the planners’ heads” needed to be automated. Automating those rules could help reduce a lot of clicks. The team concluded that the clicks associated with shipments that were okay (the majority of shipments) were acceptable. It was the exceptions that needed the attention. Banker continues:
“To automate the application, they needed to get inside the minds of their users and understand how planners decided what the exceptions were, and which loads were fine. That logic then needed to be implemented in the form of a table with a hierarchy of rules. As an example, a planner might decide that all loads shipping tomorrow or the next day that have just one pick-up location and one drop off are fine and don’t need to be reviewed. Another rule might be that all loads with 53 foot equipment and a cube that falls outside a certain range absolutely needs to be looked at. There are also carrier rules (e.g., if the destination is Santa Fe, exclude Carrier X from the tender list) and lane rules (e.g., for a particular lane, exclude all loads with 53 foot trailers because it might offer an opportunity for an intermodal move). The JDA TMS solution came with an Agile Business Platform which Kimberly-Clark used to customize the TMS. The rules described above now enable the TMS to flow loads into two batches: one batch that requires review, one batch that can be processed automatically.”
At Enterra Solutions, we believe this management by exception has a lot of merit. By getting alerted to potential problems early, decision-makers generally have more options for solving them. Stress levels are also lowered because the time to respond is increased. In the Kimberly-Clark/JDA system, “If a load is kicked out because it violates a rule, the application shows the user which rule was violated.” That also helps analysts make quicker and better decisions. Banker reports that “the project took 10 months in total (4 months of IT work) and was completed in March of 2011. Initially, the company thought 70 percent of the loads would flow through untouched, but the actual number is closer to 80 percent.” That’s good news. Banker concludes:
“Kimberly Clark has freed up about 35 hours per day across its planning team. But the project has had other benefits as well. Planned loads drop to the DCs loading schedule earlier, enabling added efficiencies at the warehouse; carriers get tenders earlier, allowing Kimberly-Clark to lock down prime capacity before it disappears; and planners like it because they get to go home on time at the end of the day.”
This is a great case study because it shows how technology can be used to reduce complexity not add to it. No change is easy; but, when you can demonstrate how complexity can be reduced through the implementation of better technology, the case for change is much stronger.