Over the course of the last six years, I have helped many companies with their demand-driven initiatives. The Kimberly-Clark organization has been my best student. Their transformation took six years. The results are now clearly visible on the balance sheet. In this blog post, I would like to celebrate their story.
The first day that I worked with the Kimberly-Clark team, it was snowing in Neenah, Wisconsin. It was one of those days where the small heater in the local hotel room could not keep pace with the falling temperatures of the blinding snow storm that happened that evening. As I pulled my blanket tight and tossed on my bed, I questioned why I was doing this work. Would it really make a difference?
As I stomped the snow off of my boots to start the strategy day, I faced a room of disbelievers. The group was skeptical. As we discussed the concepts of a demand driven organization, they offered excuses like, “You need to understand that we are different. We run large assets. Our teams make more money keeping them running. We cannot be like these other companies.”
The push back was high. The willingness to change was low. However, over time it slowly changed. There were three strong drivers:
1) Fierce Competition. The rise of branded generics, and the intense competition between P&G and Kimberly-Clark in the consumer products paper business, forced Kimberly-Clark to adapt. They needed to reconsider their position to be more competitive. It was a case of when the going gets tough the tough get going.
2) Bias to Innovate. Six years ago, the Kimberly-Clark team was an innovator in the use of RFID. The company worked through two implementations of downstream data technology with strong insights for the team. As a member of the Midwestern data sharing consortia between General Mills and SC Johnson, they had the benefit of networking with other supply chain leaders. As a team, they have a strong culture of learning.
3) Goal Driven. When I started Supply Chain Insights, I ran into Scott DeGroot, Director of the Customer Supply Chain Team; Rick Sather, Vice President of the Customer Supply Chain Team; and Mike Kalinowski, Director of Supply Chain Operations, at conferences. The presentations were all hard-hitting. The Kimberly-Clark team is bullish. It is great to see a team so positive about their accomplishments. They set a target to improve top line revenue over the course of five years. The focus was on channel sell-through of products. It was their BHAG (Big Hairy Audacious Goal). At first they were nervous, they had set an aggressive goal. Now they are bullish, they beat it! They measured out-of-stocks at the shelf and they made improvements. The current focus is on store-by-store productivity and the design of the supply chain from the outside-in.
Why it Matters
In the Supply Chain Metrics that Matter table, we can clearly see that “operating margin” and “inventory turns” matter to public financial performance. The table above is a comparison of three Consumer Products Manufacturing leaders—Kimberly-Clark, Procter & Gamble, and Colgate—on driving year-over-year performance. Note the trends in operating margins and inventory turns.
To understand supply chain performance, companies need to be compared with their peer group. If not, it is hard to get context on the meaning of the data.
In the Supply Chain Index (the correlation of supply chain ratios to market capitalization) for consumer products companies (CPG), operating margin represents 7% of the impact and inventory management represents 9%. Over the past twelve years, Colgate clearly outperformed against the peer group on operating margin, but is not making progress on inventory. In contrast, over the last five years, P&G and Kimberly-Clark have both struggled to maintain margins. Each faces four years of deterioration on this important supply chain metric. However, based on their work in becoming demand driven, in the past year, Kimberly-Clark has improved both margin and inventory turns. 2012 was their fourth consecutive year of making improvements in inventory management.
An Interview with Rick Sather
This week, I interviewed Rick Sather, Vice President of Customer Supply Chain, on the improvements. I wanted to gain his insights on their demand-driven journey:
Rick, you have been able to add revenue to the top line and beat your goals. What made you successful?
We have successfully added millions of dollars to net sales. I cannot give you a definitive number.
The question of how long it took is difficult. We had accumulated learning with a couple of customers. We learned in year one and then applied this accumulated learning in year two to make a substantial difference. In four years, we delivered what we feel is “breakthrough innovation.” In the last two years, our results have been in excess of the goal. Every time that we look at the opportunity before us, we see more value than we ever first imagined. We believe that there is a lot of fruit on those vines….
What have you learned?
Small format is a big opportunity. Today, retailers have a large store count with increased velocity. We have a diffusion of inventory in the channel with excess and shortfalls. Not every retailer is at the same place. Imagine that you have several thousand locations and you have an event coming. We learned to adapt quickly. We needed to plan strategically and then review promotional events on a daily basis. The response needed to be outside-in. I feel that more and more of the industry, over time, will look at a smaller batch more frequently.
We learned through experimentation. If you make a big bet and you are wrong, you lose a lot of time. New forms of analytics allow you to do this. There is a lot of old thinking what is happening in the consumer side and the speed of that changing. Technologies are becoming more user-friendly.
This is worth multimillion dollars of savings and top line sales benefit. With one customer, focusing on a few items promotional event –where we had too much in one store and out-of-stock in others –resulted in multimillion dollars of sales. Our problems are limited bandwidth and having insights that are actionable.
Information and collaboration to make the right decisions is more important. Bandwidth enormous. It is not a question of how can we drive it deeper and further. We now have data. We have to focus on removing the handoffs.
It is about flow. There are a lot of barriers to flow. Companies have been on Lean journey. Historically, it has been take a production line and change how we think about it. At Kimberly-Clark, we were masters of big batch thinking. Let me give you an example of small and frequent analysis in a repeatable cycle. We have translated it into everything. We used to look at damage in distribution centers one time per month. We now look at it every day in every location. We have reduced our damage by 50%. It is a big mind shift.
The traditional ERP/MRP logic is a barrier. Companies need to move to flow logic. Small batches done frequently based on pull.
Another example is the work that we are doing on collaborative shipping. We are a high bulk, low weight and high frequency shipper. We are looking to marry up with other shippers with higher weight and lower velocity. There is a double-digit opportunity in costs. We are experimenting. Great learning, but we have a need for some infrastructure changes. Retailers and shippers have their own master data systems, we need a breakthrough technology to change how we map data.
What excites you?
There is no one technology that excites me. What I find exciting is bringing of all of the technologies together. I think that the market is ready for breakthrough innovation. I recently changed the Vendor Managed Inventory (VMI) software and moved to Datalliance. We are working with third-party logistics solution providers to implement collaborative shipping. We want to tie VMI and collaborative shipping together. Terra Technology and the use of their demand sensing is helping us drive a better demand signal. I think that it is a combination of VMI, forward-looking forecasting and analytics. We need to bring these processes together from the customer back into the traditional supply chain.
As I think about Kimberly-Clark, I am proud. They took the demand-driven lessons to heart. As others aspire to make a similar difference in their balance sheets, I have three closing thoughts.
- Use of Downstream Data. Kimberly-Clark actively works with downstream data. While other companies talk about it, Kimberly- Clark is aggressively using it. The team shares and uses point-of-sale data with 80% of their customers (based on volume). They are an innovator. For example, the company was a leader in the implementation of Terra Technology’s MDS product with 31% improvement in demand planning seven days out on the horizon. They implemented the Terra Technology MDS product the fastest of any consumer products leader that I have followed. The biggest impact of this forecast improvement is better decision making on new product launch planning and replenishment.
- Driving Innovation. Kimberly-Clark has partnered with Colgate and is leading an initiative for collaborative, multiparty shipping. They have the courage to push a new industry model.
- Reduction of Inventory. Note in the table, the recent improvements in the Kimberly Clark inventory cycle. The change is year-over-year. While Kraft moved on a similar pattern of technology adoption and discussions of downstream data, Kimberly-Clark made progress while Kraft did not.
Want to know more? You can hear Rick Sather share his story directly on a recent Straight Talk with Supply Chain Insights podcast.