One of the interesting things about consistently reading and hearing content from quality sources is that you start to notice trends. It is amazing how often the same topics arise at the same time in different places. We use this blog as a way to help you stay on top of the major themes in procurement and supply chain management.
Webinar Notes: Webinar Notes: Take Your Sourcing Down to the Component Level: The Kimberly Clark Case Study
This week’s SIG webinar (sponsored by MFG.com) gave us an interesting look inside the procurement, product design, and engineering teams at Kimberly-Clark (NYSE: KMB). There is a good chance that you have a number of K-C products in your home right now: Kleenex, Scott, Huggies, and Cottonelle are just a few of their brands. Unless you are a SIG member you can’t listen to the event on demand, but there is a case study overview available from MFG.com.
Despite the seeming simplicity of personal care products like tissues, toilet paper and napkins, the machines that make them are large, custom, complex, and expensive – although less so once K-C procurement is done with them. This case study is the story of how K-C went from purchasing each of their machines as a single piece to sourcing all of the individual assemblies and components separately.
The individual part costs in these machines range from $5 to $5,000. While some of their custom parts have to be purchased from higher cost (high overhead) suppliers, many of the basic parts can now be purchased from lower cost operations around the globe. While they have outsourced most of their machine production, K-C did retain some in-house manufacturing capabilities. They use this capability to do accurate cost comparisons from suppliers, to stay on top of market knowledge, and to do some strategic work in house like R&D and quick turnaround fill-ins if there is an issue with a supplier. While they wants to outsource as much as possible to keep their headcount low, they also need to be flexible and reactive.
Making the New Process a Reality
When K-C initially made the decision to start sourcing at the component level, they took the time to communicate with their current suppliers to make sure they understood the process and knew how to get feedback back to K-C. Some of their incumbent suppliers underestimated K-C’s commitment to the new program, and in particular questioned their willingness to look overseas for parts. Some of those suppliers lost business in the initial rollout but have since earned some of it back.
Part of what made this new program a success was understanding and cooperation between procurement, engineering and product design. At K-C there are no ‘sacred cows’, procurement has fantastic stakeholder involvement, and the company as a whole has embraced supplier collaboration and technology. One of the first things they learned is that they had been overpaying on their machines for nearly a decade.
K-C puts out thousands of RFQ’s for a single machine, including 17-19,000 rows of items. Some pieces or parts within one machine are the same between RFQs because they are used in more than one assembly. K-C is able to consolidate the component volume within each machine but not beyond to other machines (or projects in their terminology). There are many unique projects in flight at any given time, and the sourcing of their components is tied to the internal approval process to build them. Once the project is approved, the sourcing work begins.
In addition to the obvious savings benefits of this approach, K-C evaluates their suppliers on quality and their ability to meet on-time requirements (as opposed to evaluating the location of the supplier). Having well documented quality control standards has been key: most quality issues are found in the assembly process. Every time K-C finds a bad part, they log it and there is a monthly quality report sent to involved suppliers. Depending upon the timing of the replacement need, K-C will either have the supplier replace the parts or replace them using their in house capabilities.
Because they source their components globally, managing shipping cost is an additional factor in the award process. K-C has all bidding vendors separate out the shipping costs and then they use their own historical data to add them back in. The volume of parts from each supplier have an impact on the shipping cost/part and that is kept in mind when making award decisions. For example, they make sure they are not negating negotiated savings by purchasing only one low cost part from a supplier that will have to charge high rates to get that part to K-C.
Kimberly-Clark Conclusions and Lessons Learned
There was a learning process early on: documentation and drawings had not always been kept up to date even though their incumbent suppliers were producing the right parts. The incumbents knew what K-C wanted regardless of the drawings because of open communication, so when new suppliers came in they produced to the drawing even when they were out of date.
- Challenge the status quo
- Align objectives between procurement, engineering and product development
- Challenge your current suppliers to make sure they are on board with any new procurement processes
- Constantly re-test the global market, both to make sure you are getting a good deal and to see if there is something better available.
- Keep fluctuations in currency rates in mind
- Get procurement engaged with project teams early, understand their drawing and manufacturing timelines so you can level the sourcing work load
Kimberly-Clark and its well-known global brands are an indispensable part of life for people in more than 150 countries. Every day, 1.3 billion people - nearly a quarter of the world's population - trust K-C brands and the solutions they provide to enhance their health, hygiene and well being. With brands such as Kleenex, Scott, Huggies, Pull-Ups, Kotex and Depend, Kimberly-Clark holds No. 1 or No. 2 share positions in more than 80 countries.
Founded in 2000, MFG.com is the largest global online marketplace for manufacturers looking to source custom parts, standard components, assemblies and textiles. MFG.com has revolutionized the way parts get sourced, bringing tremendous efficiencies to its users that they could have never imagined before. Since 2000, billions in sourcing opportunities have been enabled by MFG.com.
Sourcing Interests Group (SIG) is a membership organization that has served sourcing and outsourcing professionals from Fortune 500 and Global 1000 companies throughout its 20-year history. SIG is unique in that it blends practitioners, service providers and advisory firms in a non-commercial environment. Members of all types are focused on improving bottom-line performance, quality and customer service through strategic sourcing/procurement and outsourcing initiatives. SIG is acknowledged by many as a world leader in providing an ongoing forum for networking and sharing thought leadership, innovation and “next” practices.