Kimberly-Clark connects its supply chain to the store shelf
In its quest to achieve a demand-driven supply chain, Kimberly-Clark turned to software that generates shipment forecasts based on point-of-sale data. The move has allowed the consumer products giant to better serve some of its customers with a lot less inventory.
James Cooke is a principal analyst with Nucleus Research in Boston, covering supply chain planning software. He was previously the editor of CSCMP?s Supply Chain Quarterly and a staff writer for DC Velocity.
For the past six years, Kimberly-Clark Corp. has been on a mission to connect its supply chain to the store shelf. The manufacturer of personal-care products wanted to create a demand-driven supply chain that would make and warehouse only the precise amount of inventory needed to replace what consumers actually purchased.
The company had good reason to make this one of its top priorities. "If we align our activities to what's happening on the shelf, we can take a lot of cost, waste, and inventory out of the system," explains Rick Sather, Kimberly-Clark's vice president of customer supply chain for North America consumer products.
That's easier said than done, of course. The roadblock for Kimberly-Clark was that its store shipments were based on historical sales forecasts, which were not very accurate predictors of future sales. To match shipments with actual demand, the company would need to use point-of-sale (POS) data from consumer purchases as the basis for replenishments to grocers and retailers.
Toward that end, the manufacturer began using software that utilizes sales data to generate forecasts that trigger shipments to stores. To date, only three of Kimberly-Clark's largest customers are participating in the program, but the results have been notable. These demand-driven forecasts, which are more accurate than the historical sales forecasts, let the manufacturer better serve those customers but with much less inventory.
SHIFTING FOCUS
Based in Irving, Texas, a suburb of Dallas, Kimberly-Clark makes such well-known personal-care products as Kleenex facial tissues, Huggies diapers, and Scott's paper towels. Its worldwide sales exceeded $21 billion in 2012.
Back in 2006, company executives decided to refocus Kimberly-Clark's supply chain strategy from supporting manufacturing to serving the specific needs of its retail and grocery customers. As a first step, the company reconfigured its North American distribution network to position its warehouses closer to those customers. Before the reconfiguration, Kimberly-Clark used 120 facilities of various types, and it shipped from 60 to 70 locations to satisfy all customer orders. The shipping location was dictated by the order's product mix, not geography. As a result, orders could be shipped from multiple locations to the same customer, and forecasting and maintaining the proper mix of products at any given DC was difficult.
By 2008, Kimberly-Clark had reduced the number of warehouses it used to 30 multiproduct facilities strategically located near its customers. The reconfiguration involved a combination of opening new, larger facilities—some of which handle Kimberly-Clark's full product line—and repurposing some existing sites. For example, a few of the distribution centers began supporting a smaller group of customers, or they switched to shipping only promotional items. Today, 20 of the 30 warehouses and distribution centers now ship directly to customers.
Because the reconfiguration placed more warehouses and DCs closer to Kimberly-Clark's customers, the company was able to increase order frequency and reduce transit times for many of them. That paid off not just for the customers but for the manufacturer, too. "We realigned our DC network and streamlined it to bring inventory and costs out of the system and make ourselves more responsive to customer needs," says Michael Kalinowski, the company's manager of supply chain analysis. "We used to view our supply chain as ending once we delivered to the customer's door, but now we've extended that to the customer's retail location, and in some cases, right to the shelf."
BECOMING ONE WITH DEMAND
The ultimate objective of any change in supply chain strategy is to increase company profits. Kimberly-Clark viewed a demand-driven supply chain as being critical to achieving that objective. The Great Recession of 2008-2009 brought additional "energy" to that focus as Kimberly-Clark sought to reduce its inventory holdings to free up working capital, says Scott DeGroot, the company's director of supply chain strategy.
To become a truly demand-driven supply chain, Kimberly-Clark would have to incorporate demand-signal data—information about actual consumer purchases—into its plans for resupplying retailers with products. In 2009, the company made some limited use of downstream retail data in its demand-planning software, but it continued to rely for the most part on historical shipment data as the basis for its replenishment forecasts. But forecasts based on historical sales are prone to error, because they cannot predict spikes in consumer demand. Such errors left Kimberly-Clark with excess safety stock and unsold inventory.
To address that problem and improve forecasting, Kimberly-Clark conducted a pilot program with the software vendor Terra Technology aimed at incorporating demand signals into its North American operation. The pilot proved successful, and in 2010, the consumer products giant purchased and implemented Terra Technology's multienterprise demand-sensing solution. Initially, Kimberly-Clark only ran the software's forecast engine, using its own internal data. Since 2011, however, it has been using actual retail sales data to drive both replenishment and manufacturing.
Three retailers, which account for one-third of Kimberly-Clark's consumer products business in North America, currently provide point-of-sale data. That information is fed daily into the solution's engine, which then recalibrates the shipment forecast for each of those retailers. Each day, the software evaluates any new data inputs from the retailers along with open orders and the legacy demand planning forecast to generate a new shipment forecast. That forecast, in daily buckets, covers the current week plus the next four weeks. Kimberly-Clark then uses that forecast to guide internal deployment decisions and tactical planning.
The software contains algorithms that process data provided by the retailers, such as point-of-sale information, inventory in the distribution channel, shipments from warehouses, and the retailer's own forecast. It reconciles all of the data to create a daily operational forecast. The software also identifies patterns in the historical data to determine which inputs are the most predictive in forecasting shipments from Kimberly-Clark's facilities. The inputs are re-evaluated weekly, and how much influence each input has on the forecast can change. For example, POS might be the best predictor of a shipment forecast on a three-week horizon, but actual orders could be the best predictor for the current week.
By using actual demand—that is, the point-of-sale data—to recalculate its operational forecasts, Kimberly-Clark can better ensure that it has the products consumers want to buy in stores at the right time. Although only three companies at the moment are providing POS data, Kimberly-Clark is also using the Terra solution to create forecasts for its other retail customers. For that customer group, the manufacturer relies on historical shipment data to develop its forecast.
LOWER FORECAST ERROR RATES
Since it began using that particular metric to evaluate its daily forecast, Kimberly-Clark has seen a reduction in forecast errors of as much as 35 percent for a one-week planning horizon and 20 percent for a two-week horizon. "What we've noticed is that as you go farther out in the [planning] horizon, the inputs are less predictive and the amount of forecast-error reduction tends to erode," says Jared Hanson, a demand planning specialist.
Thanks to that reduction in forecast errors, there is less need for safety stock. In fact, Hanson says, more accurate forecasts have allowed Kimberly-Clark to take out one to three days' worth of safety stock, depending on the SKU. "From a dollars or return on investment perspective, that's the most tangible benefit," he says.
More accurate forecasts and the commensurate reductions in safety stock have helped Kimberly-Clark reduce its overall inventory. The company says it has cut finished-goods inventory by 19 percent in the last 18 months.
Equally important, say Kimberly-Clark's supply chain executives, is the fact that the company was able to achieve this stellar inventory performance without compromising the quality of service it provides to customers. "As we sit today," says Sather, "our ability to serve customers with this level of inventory is the best it's been in many years."
This story first appeared in the Quarter 1/2013 edition of CSCMP's Supply Chain Quarterly, a journal of thought leadership for the supply chain management profession and a sister publication to AGiLE Business Media's DC Velocity. Readers can obtain a subscription by joining the Council of Supply Chain Management Professionals (whose membership dues include the Quarterly's subscription fee). Subscriptions are also available to non-members for $34.95 (digital) or $89 a year (print). For more information, visit www.SupplyChainQuarterly.com.
Congestion on U.S. highways is costing the trucking industry big, according to research from the American Transportation Research Institute (ATRI), released today.
The group found that traffic congestion on U.S. highways added $108.8 billion in costs to the trucking industry in 2022, a record high. The information comes from ATRI’s Cost of Congestion study, which is part of the organization’s ongoing highway performance measurement research.
Total hours of congestion fell slightly compared to 2021 due to softening freight market conditions, but the cost of operating a truck increased at a much higher rate, according to the research. As a result, the overall cost of congestion increased by 15% year-over-year—a level equivalent to more than 430,000 commercial truck drivers sitting idle for one work year and an average cost of $7,588 for every registered combination truck.
The analysis also identified metropolitan delays and related impacts, showing that the top 10 most-congested states each experienced added costs of more than $8 billion. That list was led by Texas, at $9.17 billion in added costs; California, at $8.77 billion; and Florida, $8.44 billion. Rounding out the top 10 list were New York, Georgia, New Jersey, Illinois, Pennsylvania, Louisiana, and Tennessee. Combined, the top 10 states account for more than half of the trucking industry’s congestion costs nationwide—52%, according to the research.
The metro areas with the highest congestion costs include New York City, $6.68 billion; Miami, $3.2 billion; and Chicago, $3.14 billion.
ATRI’s analysis also found that the trucking industry wasted more than 6.4 billion gallons of diesel fuel in 2022 due to congestion, resulting in additional fuel costs of $32.1 billion.
ATRI used a combination of data sources, including its truck GPS database and Operational Costs study benchmarks, to calculate the impacts of trucking delays on major U.S. roadways.
There’s a photo from 1971 that John Kent, professor of supply chain management at the University of Arkansas, likes to show. It’s of a shaggy-haired 18-year-old named Glenn Cowan grinning at three-time world table tennis champion Zhuang Zedong, while holding a silk tapestry Zhuang had just given him. Cowan was a member of the U.S. table tennis team who participated in the 1971 World Table Tennis Championships in Nagoya, Japan. Story has it that one morning, he overslept and missed his bus to the tournament and had to hitch a ride with the Chinese national team and met and connected with Zhuang.
Cowan and Zhuang’s interaction led to an invitation for the U.S. team to visit China. At the time, the two countries were just beginning to emerge from a 20-year period of decidedly frosty relations, strict travel bans, and trade restrictions. The highly publicized trip signaled a willingness on both sides to renew relations and launched the term “pingpong diplomacy.”
Kent, who is a senior fellow at the George H. W. Bush Foundation for U.S.-China Relations, believes the photograph is a good reminder that some 50-odd years ago, the economies of the United States and China were not as tightly interwoven as they are today. At the time, the Nixon administration was looking to form closer political and economic ties between the two countries in hopes of reducing chances of future conflict (and to weaken alliances among Communist countries).
The signals coming out of Washington and Beijing are now, of course, much different than they were in the early 1970s. Instead of advocating for better relations, political rhetoric focuses on the need for the U.S. to “decouple” from China. Both Republicans and Democrats have warned that the U.S. economy is too dependent on goods manufactured in China. They see this dependency as a threat to economic strength, American jobs, supply chain resiliency, and national security.
Supply chain professionals, however, know that extricating ourselves from our reliance on Chinese manufacturing is easier said than done. Many pundits push for a “China + 1” strategy, where companies diversify their manufacturing and sourcing options beyond China. But in reality, that “plus one” is often a Chinese company operating in a different country or a non-Chinese manufacturer that is still heavily dependent on material or subcomponents made in China.
This is the problem when supply chain decisions are made on a global scale without input from supply chain professionals. In an article in the Arkansas Democrat-Gazette, Kent argues that, “The discussions on supply chains mainly take place between government officials who typically bring many other competing issues and agendas to the table. Corporate entities—the individuals and companies directly impacted by supply chains—tend to be under-represented in the conversation.”
Kent is a proponent of what he calls “supply chain diplomacy,” where experts from academia and industry from the U.S. and China work collaboratively to create better, more efficient global supply chains. Take, for example, the “Peace Beans” project that Kent is involved with. This project, jointly formed by Zhejiang University and the Bush China Foundation, proposes balancing supply chains by exporting soybeans from Arkansas to tofu producers in China’s Yunnan province, and, in return, importing coffee beans grown in Yunnan to coffee roasters in Arkansas. Kent believes the operation could even use the same transportation equipment.
The benefits of working collaboratively—instead of continuing to build friction in the supply chain through tariffs and adversarial relationships—are numerous, according to Kent and his colleagues. They believe it would be much better if the two major world economies worked together on issues like global inflation, climate change, and artificial intelligence.
And such relations could play a significant role in strengthening world peace, particularly in light of ongoing tensions over Taiwan. Because, as Kent writes, “The 19th-century idea that ‘When goods don’t cross borders, soldiers will’ is as true today as ever. Perhaps more so.”
Hyster-Yale Materials Handling today announced its plans to fulfill the domestic manufacturing requirements of the Build America, Buy America (BABA) Act for certain portions of its lineup of forklift trucks and container handling equipment.
That means the Greenville, North Carolina-based company now plans to expand its existing American manufacturing with a targeted set of high-capacity models, including electric options, that align with the needs of infrastructure projects subject to BABA requirements. The company’s plans include determining the optimal production location in the United States, strategically expanding sourcing agreements to meet local material requirements, and further developing electric power options for high-capacity equipment.
As a part of the 2021 Infrastructure Investment and Jobs Act, the BABA Act aims to increase the use of American-made materials in federally funded infrastructure projects across the U.S., Hyster-Yale says. It was enacted as part of a broader effort to boost domestic manufacturing and economic growth, and mandates that federal dollars allocated to infrastructure – such as roads, bridges, ports and public transit systems – must prioritize materials produced in the USA, including critical items like steel, iron and various construction materials.
Hyster-Yale’s footprint in the U.S. is spread across 10 locations, including three manufacturing facilities.
“Our leadership is fully invested in meeting the needs of businesses that require BABA-compliant material handling solutions,” Tony Salgado, Hyster-Yale’s chief operating officer, said in a release. “We are working to partner with our key domestic suppliers, as well as identifying how best to leverage our own American manufacturing footprint to deliver a competitive solution for our customers and stakeholders. But beyond mere compliance, and in line with the many areas of our business where we are evolving to better support our customers, our commitment remains steadfast. We are dedicated to delivering industry-leading standards in design, durability and performance — qualities that have become synonymous with our brands worldwide and that our customers have come to rely on and expect.”
In a separate move, the U.S. Environmental Protection Agency (EPA) also gave its approval for the state to advance its Heavy-Duty Omnibus Rule, which is crafted to significantly reduce smog-forming nitrogen oxide (NOx) emissions from new heavy-duty, diesel-powered trucks.
Both rules are intended to deliver health benefits to California citizens affected by vehicle pollution, according to the environmental group Earthjustice. If the state gets federal approval for the final steps to become law, the rules mean that cars on the road in California will largely be zero-emissions a generation from now in the 2050s, accounting for the average vehicle lifespan of vehicles with internal combustion engine (ICE) power sold before that 2035 date.
“This might read like checking a bureaucratic box, but EPA’s approval is a critical step forward in protecting our lungs from pollution and our wallets from the expenses of combustion fuels,” Paul Cort, director of Earthjustice’s Right To Zero campaign, said in a release. “The gradual shift in car sales to zero-emissions models will cut smog and household costs while growing California’s clean energy workforce. Cutting truck pollution will help clear our skies of smog. EPA should now approve the remaining authorization requests from California to allow the state to clean its air and protect its residents.”
However, the truck drivers' industry group Owner-Operator Independent Drivers Association (OOIDA) pushed back against the federal decision allowing the Omnibus Low-NOx rule to advance. "The Omnibus Low-NOx waiver for California calls into question the policymaking process under the Biden administration's EPA. Purposefully injecting uncertainty into a $588 billion American industry is bad for our economy and makes no meaningful progress towards purported environmental goals," (OOIDA) President Todd Spencer said in a release. "EPA's credibility outside of radical environmental circles would have been better served by working with regulated industries rather than ramming through last-minute special interest favors. We look forward to working with the Trump administration's EPA in good faith towards achievable environmental outcomes.”
Editor's note:This article was revised on December 18 to add reaction from OOIDA.
A Canadian startup that provides AI-powered logistics solutions has gained $5.5 million in seed funding to support its concept of creating a digital platform for global trade, according to Toronto-based Starboard.
The round was led by Eclipse, with participation from previous backers Garuda Ventures and Everywhere Ventures. The firm says it will use its new backing to expand its engineering team in Toronto and accelerate its AI-driven product development to simplify supply chain complexities.
According to Starboard, the logistics industry is under immense pressure to adapt to the growing complexity of global trade, which has hit recent hurdles such as the strike at U.S. east and gulf coast ports. That situation calls for innovative solutions to streamline operations and reduce costs for operators.
As a potential solution, Starboard offers its flagship product, which it defines as an AI-based transportation management system (TMS) and rate management system that helps mid-sized freight forwarders operate more efficiently and win more business. More broadly, Starboard says it is building the virtual infrastructure for global trade, allowing freight companies to leverage AI and machine learning to optimize operations such as processing shipments in real time, reconciling invoices, and following up on payments.
"This investment is a pivotal step in our mission to unlock the power of AI for our customers," said Sumeet Trehan, Co-Founder and CEO of Starboard. "Global trade has long been plagued by inefficiencies that drive up costs and reduce competitiveness. Our platform is designed to empower SMB freight forwarders—the backbone of more than $20 trillion in global trade and $1 trillion in logistics spend—with the tools they need to thrive in this complex ecosystem."