Organizations in today’s economy often include cost control or reduction in their overall strategies. Logistics is an area of increasing focus where internal and external costs affect the margins and customer demands require excellence of service. In distribution, selective, exclusive and intensive are three primary channels in which an organization must determine the best option in relation to products and customers. The Kimberly Clark Company provides an excellent example for today’s organizations with “a customer-oriented supply chain reorganization begun more than four years ago, K-C is improving distribution efficiencies, reducing transportation costs and shrinking its carbon footprint, while becoming an indispensable partner to retail customers” (Jamison, 2008, para.3). Technology and the Supply Chain
Continuous advancements in technology offer new solutions to old problems in supply chain management as well as placing focus on the current needs of distribution in global markets. Real-time locations systems (RTLS) are among emerging technologies where “RFID is no longer considered an emerging technology. It is a proven solution with high value add and an increasingly attractive ROI, said Michael Liard, Director, AutoID for VDC Research Group.” (Zebra Technologies, 2012). Technology plays an important role in distribution where retail customers focus on inventory reduction while maintaining adequate supply to meet consumer demands. Real time information provides organizations such as Kimberly Clark with the necessary data to develop the most effective channels for distribution based on individual products and customers. Kimberly Clark’s EDI Solution
Kimberly Clark’s efforts in supply chain improvement are validated through receipt of the Dick Clark Supply Chain Award in 2011which “honors the consumer goods company that best demonstrates excellence in executing improvements in supply and demand planning, execution or network design” (PR Newswire, 2011). When Kimberly Clark decided to transform its distribution channels through direct management of logistics, it “turned to OmPrompt to integrate the processes and data from its in-house logistics software system with the systems (electronic and paper-based) of more than 100 small and medium-sized carriers throughout Europe” (InterSystems, 1996-2012).
As a leading producer and distributor of health and hygiene products in North America, Kimberly Clark’s supply chain reaches out to a variety of customers including mass retailers, major warehouse clubs, supermarkets, convenience and drug stores. (Jamison, 2008, para.4). In order to design the most effective supply chain system with EDI integration, K-C considers customers’ goals in conjunction with their own. In their research, K-C identified a common goal to maximize efficiency of their supply chains among retail customers. K-C’s integrated EDI system provides real-time data to identify sales trends “to ensure that stores are promptly supplied with products during promotional periods and peak times of year, such as the winter cold and flu season” (Jamison, para. 5). Distribution Channels
Prior to technology advancements, that allow distributors to view real-time transactions and inventory status within their own warehouse as well as customer data, a great deal of time was involved in manual review to determine the best method of distribution for each retail customer. The process for selection of distribution channels “can be logically viewed as a five-stage process, with a sixth stage added for review and evaluation purposes. The six stages are the: (1) decision areas – five big questions; (2) guidelines – four major objectives; (3) determinants – four influencing factors; (4) figures – quantifying the options; (5) decision;(6) channel review and evaluation” (Mallen, 1996, para.1). In the first stage, an organization answers questions about the degree of directness of the channel structure, how selective the distribution channel(s) should be, the type(s) of middlemen to include, how many channels to establish for a given product, and how individual middlemen will fill the slots created. Kimberly Clark’s Channel Selection
Kimberly Clark’s success in supply chain management is the result of a long-term project that kicked off in 2004 with identifying important
customers and asking them what they were looking for from K-C as a supplier. The general answer, “maybe not surprisingly they said they would like to improve service levels and reduce inventories and cycle times” (Gilmore, 2008, para.8). With that, Kimberly Clark can answer the question about degree of directness to meet the improved service levels, reduced inventories and improved cycle times requested by customers. Kimberly Clark Combines Technology with Objectives
In choosing distribution channels based on product lines and customers, “The decision questions must be answered within a framework of objectives that are at times conflicting. The basic objectives can be reduced to four: (1) maximize sales; (2) minimize cost; (3) maximize channel goodwill; and (4) maximize channel control” (Mallen, 1996). As previously mentioned, three primary goals Kimberly Clark set for the new framework per customer feedback are improved service, reduced inventories, and improved cycle times. Internally, the company set two additional key objectives according to Mark Jamison, VP of North American Customer Supply Chain for Kimberly Clark, “to become more flexible with our supply chain design, and secondly we wanted to realize significant cost savings” (Gilmore, 2008, para.9). Kimberly Clark employed experts to assist in designing the new framework.
They realized that the current design of 70 smaller distribution centers located nearby manufacturing facilities nationwide had obtained the highest level of efficiency possible and would not work with the goals going forward. With all of this in mind, the obvious overall distribution strategy decided upon by Kimberly Clark is a demand driven system. In summary, “That meant redesigning the supply chain “from the shelf back,” not from “manufacturing assets forward” and according to the VP, Jamison, meant achieving end-to-end visibility through integration with customers and suppliers where POS drives the entire process. (Gilmore, 2008). Outsourcing in the Supply Chain
While trends in which activities companies outsource may be different today, “Unlike the popular belief that outsourcing is a recent phenomenon, it actually has been in existence as long as work specialization has existed” (PRLog, 2009, para.1). Kimberly Clark outsourced in order to have the most qualified team for the reorganization of their supply chain. During an interview, Jamison, VP of Kimberly Clark, noted that “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.)” (Gilmore, para.15-16). Rarely is a process or decision without cons that accompany the pros. While outsourcing offers a host of advantages including; cost savings, quality service, access to specialized skills, contractual obligation where liability is higher than that of an employee, deferment of staffing issues, risk mitigation, and capacity management, it also comes with a list of cons to consider. Among the cons are; linguistic barriers, social responsibility, company knowledge, and staff turnover according to a 2009 press release by PRLog. Outsource Only if Pros Outweigh the Cons
The existence of negative aspects should not deter a company from outsourcing, it should however, push that company to review each positive and negative possibility one by one. Sometimes companies outsource based on a narrow window of information. For example, I work for a company under the direction of a single owner who makes the decision to outsource some operations to China manufacturers based only on the cost to produce where the data calculated is limited to the cost of labor per part, the cost of materials per part, and the freight to obtain those materials. In some cases, the quality of products from a China source is so poor that we cannot even use them. We recently developed a new product line in which a custom cam lock is a component. My role is materials manager among others, yet the owner assumes responsibility for identifying vendors for new products. An American company based on a drawing and information supplied directly from the owner manufactured the initial design of the lock.
Once the owner approved the design, samples of the lock along with the drawing and specifications for raw material requirements and finishing of metal parts were submitted to the China manufacturer selected to run the production. A small number of locks were supplied by the source for initial design approval that met all of the required specifications. Our owner responded with approval to run a small production quantity for a second approval process; however, the source ran a large production run and shipped a sample lot to us in which every part failed for improper hardening of the steel that caused a 100% failure rate. Even though my company will not pay for the rejected production, the costs run high in the form of delay of our new product line to market. Kimberly Clark’s Outsourcing Choices
A Google search for the outsourcing options of Kimberly Clark results in a long list of articles and case studies. One case study by Nick Allen and Arkill Matthews Allen offers a detailed look into a multi-faceted lean operations outsourcing project where “Outsourcing the management of its Barton Mill DC to Unipart Logistics has broadened the company’s perspective on operational efficiency – challenging many of the global manufacturer’s notions on labour management and productivity” (Allen & Allen, 2010). Organizations often focus on lean production operations, as does Kimberly Clark who decided to expand lean one-step further into a lean supply chain operation through outsourcing its Barton Mill logistics to Unipart Logistics. The goal for this particular project is “Ensuring that the big European retail chains receive a timely and efficient supply of Kimberly Clark products, in a cost effective way” (Allen & Allen). The concept is taking the same lean principals applied in manufacturing and applying them to logistics functions in the form of a labor only contract.
The concept if achieved would go beyond traditional lean activities of waste reduction in operations and increased productivity to a third party logistics provider that would challenge Kimberly Clark’s methods and drive improvements in their supply chain processes. Unipart Logistics does not take the challenge lightly, but is confident that their environment is exactly the one that can accomplish the task. “The Unipart Way encourages staff to work in teams and to constantly monitor and question the efficiency of the tasks they perform. In meeting areas known as ‘Communication Cells’ teams meet on a daily, weekly and monthly basis to review performance against key performance indicators (KPIs) set in accordance with customer goals” (Allen & Allen). By providing all the necessary tools and encouraging staff members’ involvement, decisions come quicker.
A variety of communication techniques ensures that every member is aware of the performance on any given function down to the cost-per-lift. The simple tracking of the cost-per-lift created awareness of the waste involved leading to changes that have reduced that cost by 44% within three months. For Kimberly Clark, the outsourcing of logistics in one facility provides effective methods that can be applied across the board in every facility. The benefits of outsourcing the tasks of one facility create cost reduction and increased productivity has the potential to expand throughout every facility where it can be determined on a case-by-case level whether to implement those processes internally or outsource tasks to other third party logistics providers. The pros are the winner here where the improvement potential is unlimited and if opting to continue outsourcing logistics in other locations may result in additional improvement ideas. Playing by the Rules
Amidst all of the improvement activities within its supply chain operations that span the globe, Kimberly Clark must also ensure that they remain in compliance with all laws and regulations. Compliance is always important in transportation of products and lack of compliance with specific laws and regulations with shipments made from foreign countries to the USA or vice versa can result in delay of shipment. Shipments may be seized permanently in cases of severe violation. A correct bill of lading along with all required import and export documents must accompany the shipment and be correctly stated. The costs of failure to comply with “Laws which affect pricing influence channel selection through regulation of price discrimination, exclusive dealing, brokerage discounts, allowances for and furnishing of promotional services, resale price maintenance, and integration” can result in a total loss of the shipment. A Supply Chain Example
In this example, a new small business designs a product for manufacture and finds that the costs to produce in-house are too high to compete with primary competitors. Research in foreign outsourcing options for low-cost manufacturing including logistics costs to move the product to the American facility for distribution provides the right price. At start up, the company will need two manufacturers to meet demand and each manufacturer will require two raw materials suppliers. The manufacturers are responsible for logistics costs of raw materials that are included in the quoted product price to the company.
The company is responsible for logistics costs from the manufacturers. The company obtains agreements from several dealers and retailers to carry the product line where negotiated logistics costs are an option included in product price or as a separate cost paid by the recipient. Dealers and retailers sell the products to end consumers. The return route runs exactly backwards where end consumers deal with the place of purchase for return, the dealers and retailers return products directly to the company. The use of foreign sources requires setting up advance agreements about returns as the freight to return defective products is too costly when foreign sources are involved. Returned product data is supplied back to manufacturers where along with the company, credits are agreed upon and corrective action processes are implemented. Kimberly Clark and This Model
This example could symbolize the early days of Kimberly Clark as a new small business with a big idea. American business often begins with an idea to fill a need or desire for products with long-term sales capabilities. Kimberly Clark is one example who provides a line of personal care products including “a range of health and hygiene products for the consumer market, including leading brands such as Kleenex facial tissue, Cottonelle and Scott bathroom tissue and Huggies diapers and toiletries” (Jamison, 2008, para.4). Products such as these will always have demand where the challenge is continuous improvement in order to retain customer interest. Customers are often willing to pay a slightly higher price for quality in these product types as long as the quality meets or exceeds expectations. In order to succeed with this mindset, the primary focus must include quality, service, and cost control. Conclusion
Kimberly Clark as a leading manufacturer of personal care items has achieved that spot through smart decisions. The supply chain management of a company that moves as much product as Kimberly Clark is a key factor in their ability to control costs and provide quality products and service. Like many other American based companies, Kimberly Clark explored outsourcing options for production early on and once the company reached a point where manufacturing costs were under control, yet still needed to improve operations, they looked to the supply chain. Through smart outsourcing to utilize the experience and knowledge of professionals, Kimberly Clark identified a host of logistic improvement opportunities involving a revamp of the distribution center design to reduce those from many smaller centers to a few number of large centers. The increased ability to provide a wider variety in demanded quantities in shorter times keeps Kimberly at the top of their industry.
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