If more shippers are starting to think about co-loading freight and sharing capacity to fight rising transportation costs, some credit should go to Kimberly-Clark. For more than two years, the $21.1 billion consumer packaged goods company has successfully shared truck capacity with another CPG shipper, Colgate, to improve distribution to a limited number of CVS Caremark retail stores.
The “collaborative shipping” pilot project cut total truck miles by 10 percent and line-haul and fuel costs by 18 percent or more, according to data provided by Dallas-based Kimberly-Clark, which owns iconic brands such as Kleenex and Kotex. The partners began collaborative shipping in Texas in 2010 and Florida in 2011.
The project brought Kimberly-Clark more than savings. “It’s not just money,” Scott DeGroot, director of supply chain strategy and development, said in an interview for an article on the project last fall. “Gains could come from improved inventory efficiency and retailer support,” which generates more business from retailers.
The need to find savings somewhere is clear: Kimberly-Clark’s distribution costs increased $10 million in this year’s first quarter, according to the company’s earnings report. Raw materials costs — paper, pulp and oil — also were $10 million higher.
But the manufacturer also saved $85 million in the quarter through a program called Focused on Reducing Costs Everywhere. That helped the company increase operating profit 12 percent to $783 million, while net sales rose only 1 percent year-over-year to $5.3 billion.
“We delivered all-time record adjusted earnings per share, reflecting continued momentum in K-C International, $85 million of cost savings from our ongoing FORCE program and above-plan volume growth in North American consumer tissue,” Chairman and CEO Thomas J. Falk said.
FORCE is estimated to have saved Kimberly-Clark $335 million in 2012, $265 million in 2011 and $310 million in 2010, according to company reports. That’s nearly $1 billion in savings since the end of the recession in 2009 alone.
Kimberly-Clark, No. 46 on the JOC’s list of Top 100 Exporters with 30,249 TEUs in 2012, increasingly looks to its supply chain for savings, both at the strategic level and the tactical level. A supply chain re-engineering effort was launched in 2006. The company has opened manufacturing plants in Russia and China in recent years not just to increase sales and share in emerging consumer markets but also to reduce transportation costs. “We still see a lot of ways of reducing and eliminating waste in our supply chain to lower costs,” Steve Harmon, vice president of transportation, told The Journal of Commerce during a shipper roundtable earlier this year. “We’re going to be all over that” in 2013.
In North America, Kimberly-Clark’s transportation spend is increasingly multimodal. Since 2008, the company has been shifting freight from truck to intermodal rail when possible, Harmon said at the JOC roundtable. “We’re putting whatever we can on the train. We’re also taking out miles and looking at our network optimization. We continue to look at any opportunity we can to put our over-the-road freight on rail, at least in terms of part of the haul. It’s one thing that also supports our sustainability initiatives.”
Through those initiatives, Kimberly-Clark has eliminated 1.5 million metric tons of carbon dioxide emissions and saved 134 million gallons of diesel fuel since 2006, according to a company report. Those environmental benefits came not just from modal shift or fewer truck miles, but improvements in packaging. In addition to CVS, Kimberly-Clark worked with customers such as Walgreens and Sam’s Club on supply chain efficiencies.
The joint shipping project with Colgate and CVS is a prime example of tactical cooperation among shippers and their customers. Although the project delivered environmental and transportation savings, from a supply chain perspective, its biggest gain may come from better inventory management and product flow.
“Everyone hates inventory and wants to get inventory out of the system,” DeGroot said. Retailers such as CVS want fewer tractor-trailers arriving at their stores and demand those trucks meet increasingly tight delivery windows. “I see inventories remaining low, and it puts a lot more stress on those of us who manage transportation,” Harmon said at the JOC roundtable, “whether it’s domestic or international, because now we do not have buffer inventories. Any delay in movement of goods to market, is a lot more visible and a lot more painful. If you do not manage for on-time deliveries to ensure that your product is on the shelf at the time the shopper or consumer wants to buy, it will impact the bottom line.”
Kimberly-Clark collects point-of-sale data from three large customers to drive inventory replenishment based on demand, rather than historical forecasts. That kind of demand-driven replenishment could help suppliers share capacity more effectively — if they are able to use the data in a timely, integrated manner.
Combining data from disparate systems wasn’t easy for Kimberly-Clark and Colgate, DeGroot said. The shippers used transportation and warehouse management systems that could optimize trailer loads — but not for both companies together. “We had to create manual spread sheets to pull the freight together,” DeGroot said.
Colgate typically shipped a partial truckload of heavier products to CVS every two weeks that “weighed out” before cubing out, meaning there was plenty of air space in its trailer — which raises costs. Kimberly-Clark shipped three or four truckloads of higher volume, lighter freight to CVS each week. Sharing space allowed the shippers to eliminate a truck from the schedule every two weeks, DeGroot said.
“We reduced the surge of inbound trucks,” he said. “CVS, like any other retailer, struggles at times with throughput in the DC network. Eliminating trucks that otherwise had to touch the docks frees up constraints within their network. We’ve been able to drive greater reliability in replenishment and efficiency overall.”
Conversations with shippers at this spring’s NASSTRAC conference in Orlando and elsewhere point to increased collaboration to guard against tightening truck capacity that could disrupt supply chains. DeGroot last year warned the capacity situation could get much worse. “There’s very little incentive for (motor) carriers to expand and hurt their own operations by driving margins down,” he said. “Carriers are going to have to allocate shippers the way other people allocate resources.”