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Sharing supply chains for mutual gain
Eight years ago, when Kimberly-Clark Corporation launched a collaborative distribution trial with Lever Fabergé (now Unilever's Home and Personal Care unit) in the Netherlands, company managers had no idea that they were trailblazing what would become a supply chain best practice in Europe. In that first experiment, the two companies made joint deliveries to customers, with each company filling half of each truck.
With that early effort, Kimberly-Clark pioneered the concept of collaborative distribution, also known as shared or collaborative supply chains, a practice that is now sweeping Europe. In a shared supply chain, two or more companies use the same distribution facility and transportation services to serve mutual customers. This practice reduces costs for manufacturers and provides more frequent replenishment for retailers.
Kimberly-Clark's venture with Lever Fabergé in the Netherlands encouraged other companies to take the plunge into shared distribution. "It was the starting point for what is now known as collaborative supply chains in Europe," says Peter Surtees, KimberlyClark's director of supply chain for Europe. "Collaboration now is a big thing in Europe, especially for CPGs (consumer packaged goods companies)." The concept of shared supply chains has proved so attractive, in fact, that a nonprofit organization has been formed in Europe to foster such collaboration among other CPG companies, retailers, and thirdparty logistics companies.
For Kimberly-Clark, its positive experience with collaborative distribution in the Netherlands prompted the consumer goods giant to extend that program to additional countries and business partners. Here is a look at how the program works and what the company has accomplished to date.
More deliveries, same cost
Kimberly-Clark, a 140-year-old company headquartered in Irving, Texas, USA, makes an assortment of personal care products, including such well-known items as Kleenex facial tissues, Huggies diapers, and Scott's paper towels. In 2010 it reported worldwide revenue of US $19.7 billion from sales in more than 150 countries.
In Europe, Kimberly-Clark sells its products in 45 countries and operates 15 factories. Finished goods are stored in 32 distribution centers, all of which are operated by third-party logistics (3PL) companies.
Back in 2003, some retailers in the Netherlands were trying to restock store inventory based on pointof- sale data, which would allow them to make replenishment decisions based on actual customer transactions. As part of that initiative, the retailers wanted to increase the frequency of deliveries and resupply stores by replenishing only what had been sold. But this did not jibe with Kimberly-Clark's practice of delivering in full truckloads. "Our Dutch customers did not want full truckloads," Surtees says. "They really wanted us to deliver more frequently to align to point-of-sale data, so we would be replenishing more in real time."
The question facing Kimberly-Clark, Surtees says, was this: How can we shorten the replenishment cycle and stop delivering full truckloads without incurring additional transportation costs?
The solution, Surtees and his team decided, would be to team up with another company that was making shipments to those same retail stores. If Kimberly- Clark and its partner split a truckload, with each filling half a trailer, both companies could increase delivery frequency without increasing transportation costs.
Kimberly-Clark approached the cosmetics manufacturer Lever Fabergé about the idea. The two companies conducted a successful trial with Makro, which operates a chain of warehouse club stores in the Netherlands. The experiment produced other benefits besides transportation savings: it also demonstrated that by shortening cycle time for deliveries, collaborative distribution could reduce store inventories while increasing on-shelf availability of products. "When we did the trial with Makro, there was a 30percent reduction in the value of the products that they were storing," Surtees says. "We also got an outof- stock reduction of 30 percent."
After the trial, Kimberly-Clark and Lever Fabergé agreed that if they wanted to expand their collaboration, then they would need to engage a third-party logistics company to operate a shared distribution center and handle transportation on their behalf. In 2003 they entered into an agreement with Hays Logistics (now part of Kuehne & Nagel) to build a shared distribution center in Raamsdonksveer, the Netherlands.
While Hays was constructing the 46,000 square-meter (495,000 square-foot) facility, Kimberly- Clark and Lever Fabergé went to their mutual customers and asked for their support. "If [our Dutch customers] wanted us to do this, they had to make sure to work with us, and they had to order Unilever and Kimberly-Clark on the same day on the same truck," Surtees says.
Consultant Patrick Anthonissen, who at the time was the project leader for Lever Fabergé, says that the two manufacturers showed the warehouse to their retailer customers to help persuade them of the venture's value. "We invited many of our customers to the warehouse and explained the advantages," he recalls. "This was received well by the retailers, and in my opinion was a very good example of how the supply chain can contribute to sales."
With the backing of their customers, the two companies began their joint distribution initiative later that year. Both Kimberly-Clark and Lever Fabergé processed their own customer orders and then relayed that information to Hays Logistics. The third-party logistics company then used that information to pull both companies' products from the warehouse and ship full truckloads.
Layer picking brings labor savings
Today the original partners continue to collaborate in the Netherlands, where they have 127 shared customers. Kimberly-Clark and Unilever make 80 percent of their deliveries in the Netherlands through this shared supply chain, and shared deliveries account for 93 percent of Kimberly-Clark's sales volume in that country.
When the program got under way, each truckload would be split fairly evenly between Kimberly-Clark's and Unilever's goods. Today, because other manufacturers are also using the distribution center, KimberlyClark's products sometimes comprise only one-third of the truckload. "Kuehne & Nagel have other customers in the same distribution network, so we can be a little more flexible," says Surtees.
In addition to the benefits Kimberly-Clark and its customers realized from the beginning—more frequent replenishment without increased transportation costs, lower store inventory costs, and fewer out-of- stocks—the manufacturer has also achieved a significant reduction in handling costs in the distribution center. That reduction came about in large part because Hays invested in material handling automation to expedite handling and save on labor.
Both Kimberly-Clark's and Unilever's customers want to receive mixed-case pallets, but assembling them is time-consuming, labor-intensive, and costly. To speed up that process at the Raamsdonksveer distribution center, Hays invested in layer-picker equipment, which was furnished by Univeyor, according to Anthonissen. This type of equipment uses vacuum suction to lift a layer of cases from a pallet and transfer those boxes to another pallet. Switching from a manual process to an automated one produced notable savings. "By combining the two [companies'] volumes, we were able to automate to take out 16 percent of the handling costs," Surtees says.
Trust and rapport
After the Netherlands operation had validated the concept of a shared supply chain, it was a few years before Kimberly-Clark replicated its success elsewhere in Europe. The main reason the company waited so long was that it wanted to be careful about choosing another manufacturer to partner with. "We talked to other companies in the United Kingdom, Spain, and Italy ... and it took us a long time to find the right partner," Surtees says. "The right partner is not just somebody with the right volumes. It's also [a matter of] finding a company with the right culture—somebody you can work with, somebody you actually trust. This is a bit like getting married in some respects."
Finally, in 2006, Kimberly-Clark began collaborating with the cereal manufacturer Kellogg Company in some parts of England and Scotland. Kimberly-Clark believed that Kellogg was a good match, and that the two had the right "trust and rapport," Surtees says.
Kimberly-Clark operates distribution centers in the north and south of England, while Kellogg manufactures in the north. In a test run, Kellogg started shipping to a Kimberly-Clark distribution facility located in Northfleet, which is east of London. There, Kellogg's products were cross-docked and mixed in with Kimberly-Clark's goods, and both company's products were then loaded onto a truck for delivery to small customers in London and southeastern England.
That trial worked so well that it has become a permanent arrangement, and Kellogg now reciprocates for Kimberly-Clark's deliveries north of the city of Birmingham, located in the center of the country. Kimberly-Clark stores its products in Kellogg's distribution center in Trafford Park, near Manchester. Just as in the southeast, the two partners assemble and move full truckloads to small retailers in that region.
Getting the program started with Kellogg in England was somewhat easier than establishing the shared supply chain in the Netherlands because both companies were already working with the same thirdparty logistics company, TDG. That meant that both manufacturers already had the necessary capabilities for electronically sharing information with the 3PL. "Setting this up was relatively straightforward with both of us being [TDG] customers," Surtees says.
Expansion into France
The successful arrangement between Kimberly-Clark and Kellogg led to another shared supply chain initiative, this time in France. The partners launched a program in 2009 to serve the large French retailer, Carrefour, which was looking for opportunities to improve operations and reduce costs. "Carrefour is going down a similar journey of reducing cycle time and inventory," says Surtees. "Carrefour does not want to hold inventory at all."
There are two major differences between the shared supply chain operation in England and the one in France. First, Kimberly-Clark and Kellogg use different third-party logistics companies in France—Kellogg uses DHL while Kimberly-Clark uses the French company FM Logistic to run their respective distribution centers. However, because both 3PLs operate facilities near one another in the city of Orleans, a single truck can stop at both facilities. Now trucks operated by the French 3PL Norbert Dentressangle stop at KimberlyClark's warehouse to pick up half a truckload and then move on to Kellogg's facility to pick up goods destined for Carrefour. (In late March 2011, Norbert Dentressangle completed its acquisition of TDG, the 3PL both manufacturers use in England.)
The second difference is that in France Kimberly-Clark is responsible for maintaining inventory levels for both its own and Kellogg's products at Carrefour's distribution center. To handle the task of assembling full truckload shipments and running its vendor-managed inventory (VMI) program, Kimberly-Clark brought in a vendor-managed inventory company. "We use a vendor-managed inventory system that allows us to look into the customer's DCs and generate replenishment orders," Surtees says. "The VMI [company] does the ordering piece on behalf of Kellogg's and Kimberly-Clark."
Shared supply chains spread across Europe
In the near future Kimberly-Clark hopes to expand its use of collaborative supply chains into other countries, including Belgium, Italy, and Germany. But the manufacturer is no longer alone in these efforts. Driven by retailers' needs, other CPG companies in Europe are starting to set up shared supply chains. "The word is catching on quickly," says Surtees. "Our customers want to drive stock from their supply chain and want to shorten the replenishment cycle." Moreover, he continues, "CPGs are signing on to the concept because they are trying to find ways of servicing the customer better while trying to reduce costs, particularly transportation."
There is so much interest, in fact, that several hundred manufacturers, retailers, and logistics service companies now belong to the organization European Logistics Users, Providers and Enablers Group (ELU- PEG), which was formed to champion collaborative supply chains.
Although collaborative distribution is a hot trend right now, supply chain managers should think carefully before they get involved. What advice would Surtees give a company that wants to set up a collaborative supply chain? The most important thing, he believes, is to select the right partner. "You have to be cautious about who you get into a relationship with," he says, "because getting out of it once you have set it all up could be quite difficult."
In Surtees' view, it's also important for all parties in the shared supply chain, including the third-party logistics company, to have a "pragmatic way" of sharing the gains and benefits. For example, the deal Kimberly-Clark struck with Kuehne & Nagel in the Netherlands lets both companies share financial benefits. "The rate we are charged per case picked by Kuehne & Nagel is adjusted based on the volume picked on our behalf," he explains. "The savings flow through as a rate reduction." Kimberly-Clark also receives about one-third of the 16-percent cost reduction from the automated handling system mentioned earlier, also in the form of a rate reduction.
Finally, Surtees recommends using contract logistics service providers to facilitate the shared supply chain because they have experience dealing with multiple customers. Even though retailers are driving the move toward collaborative distribution in Europe today, he believes that 3PLs will play a greater role in fostering adoption of this practice in the future. "The logistics companies have access to the customer bases," he says. "They should be taking the lead in finding the right partners for the right operation."
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