Kimberly-Clark Europe uses financial intelligence to support cost-effective supply chain strategies

Kimberly-Clark Europe has a powerful performance management solution delivered via SAS that provides product and customer profitability information across its pan-European supply chain.

Kimberly-Clark Europe is among the world's 500 largest companies. With a global turnover of $14 billion, it provides around 400 top consumer brands.

"We're the second largest household and personal care product company in the US," says Issy Aydiner, Finance Director, Supply Chain at Kimberly-Clark Europe. "Our brands are number one or two in 76 countries, and in Western Europe we're clear number one in consumer tissue."

Success on this scale depends, in part, on efficient logistics. As you'd expect, Kimberly-Clark has a complex supply chain that extends from milling and manufacturing to storage, freight distribution and delivery. Each step involves various activities and costs.

"Looking at logistics is vitally important - in fact, several surveys have found a strong correlation between market leadership in supply chain management and superior financial results," says Aydiner. "We wanted to look at the costs involved in our delivery and distribution cycle, which can last between two and six months, takes in warehouses in 16 countries, and serves over 18 000 customers."

Nine components, cost categories, make up Kimberly-Clark Europe's distribution process, with each one behaving differently. They include customer deliveries, primary and inter-region freight, storage, handling, pallet, inventory shrinkage and administration.

"Assigning costs on a traditional accounting basis doesn't tell us much, as you cannot accurately determine the actual service costs or provide useful information for management decision-making," continues Aydiner. "It's better to use ABC principles to identify the activities responsible for the costs and determine what's driving those costs.

"Although ABC has been around for about 15 years, many companies found it difficult to implement successfully. I think this is because companies made it far too complex and costly. I believed there had to be a better way."

The business objectives were clear. "We wanted more accurate and meaningful information covering customer and product profitability. We wanted to close the books more quickly. And we wanted to spend more time on activities that added value to the business, like providing new supply chain strategies and initiatives, and delivering information for decision-making.

"We chose SAS in preference to SAP or an in-house solution," says Aydiner. "It's the industry standard in this area. It's also easy-to-use and has good reporting capabilities. With SAS at the heart of the solution, we can do all the supply chain modelling, simulation and planning we need."

SAS is used for the 'top down' part of the process: taking numbers from the General Ledger and breaking these numbers down into unit costs: for example, costs related to storage locations. This data then feeds into the SAS Value Chain Analytics application, along with data from SAP R/3, which covers the 'bottom up' part of the process. The combination of the two approaches is unique and provides Kimberly-Clark Europe with accurate and actionable cost information at all levels of the business. "Every movement made has already been captured in terms of costs," explains Aydiner. "We can look at, for example, handling costs along the supply chain: what's been loaded in and loaded out at a storage location, the pallet types coming out, activity involved in picking cases of a specific product, and so on."

Reflecting the diversity of the supply chain, Kimberly-Clark Europe's solution works across a number of criteria. "It's customer-driven, so we can look at cost issues ranging from a full truck load versus less than a full truck load, to order size, special requirements like labels, rush orders and sales forecast accuracy," adds Aydiner. "It's also product-driven, covering areas like inventory shortages, storage costs, the 'stackability' of different products, and obsolete or slow-moving products.

"It's logistics-driven to support our supply chain people in areas like transport costs, warehousing and network optimisation. More importantly, we can also look at vendor delivery performance: we're responsible for the suppliers we use, so we need excellent support in contract management. Finally, we look at other costs and financial requirements. All distribution costs must be 'expensed', with costs allocated to products and customers. These costs fluctuate month to month, and we now have a tool to explain why.

"With SAS Analytics we can understand why we have certain costs and how to influence them. We can add value to the decision-making process.

"By taking data from SAP R/3 and making it subject to certain rules, models and analytical processes, we've created a simple and cost-effective ABC solution. We can build a route-to-market and then look at each part and the costs involved. We can model 'what if?' scenarios quickly - removing certain costs to see the effect this would have. For example, we can see the impact of serving a customer from a different warehouse on our margins."

The solution, he says, is easy to understand because it matches a manager's own under-standing of the business; for example, the more handling on a product, the more costly the product will be. "Costs driven by customers can now be assigned to that specific customer and product rather than being shared, while we also have valuable information for use in cost-reduction programs."

He concludes: "There have been some radical changes to our supply chains in recent years. We wanted a solution to identify and provide full analysis of the costs associated with each product at each point along the chain, be it the cost of transport, labour or property rental. By doing so, we can now identify whether a product is truly cost-efficient and build more flexibility into our routes to market."