Kimberley-Clark rolled out an i2 transport management system across its European and North American transport operations in a move to cut costs and carbon dioxide emissions from its supply chain.
One of the biggest challenges for the manufacturer of household brands such as Kleenex, Huggies and Andrex, is the fact that its products have a large cube size but a low price per unit, which racks up transport costs.
Peter Surtees, European supply chain director of Kimberly-Clark, says: “Transport is six per cent of our net sales value and quite a big number on the profit-and-loss sheet.
“In addition, transport inflation is inevitable as oil prices, green taxation, road taxation, the Working Time Directive of the European Union and driver shortages all affect rates.”
Despite its strategy to manufacture 70 per cent of its products in the same country in which they are sold, to help reduce transport costs, the company still carries out more than 100,000 freight movements per year – all by road.
As a result, Surtees says it was spending some £104 million ($170m) per year on transport.
Previously, Kimberly-Clark used a hosted transport management system to help contract out its shipments to third-party haulers. Every time it booked a truck movement using the software, it paid a fee to the software owner. While this system met its day-to-day needs, it was restrictive.
“Our existing TMS didn’t offer us the functionality we wanted. It restricted our ability to do some more imaginative stuff, to operate strategically and to exploit opportunities to reduce costs,” he says.
The company uses SAP applications for different areas across its business, but decided against deploying SAP’s transport management solution.
“At the time, SAP didn’t offer the functionality that we needed and we weren’t prepared to wait. i2 was the most functionally rich solution available and enabled us to run the transport model that precisely suited our business,” says Surtees.
Following a three-month design phase, the i2 Transport Management system was rolled out to cover all European operations within one year. In a parallel project, the i2 solution was also deployed at Kimberly-Clark in North America.
The company uses the system to operate a league table, which ranks available carriers according to the lowest cost per route. It has no long-term, fixed commitments with its suppliers, so carriers can increase or decrease their prices flexibly, depending on different circumstances.
For example, if a hauler has a partially empty truck that is already scheduled to travel between two cities, it may want to offer very competitive rates to Kimberly-Clark to enable it to fill the remaining space and create a more cost-effective route. Equally, if a carrier knows that it has trucks due to return empty from regular deliveries to a specific location, it can offer lower rates to Kimberly-Clark to fill this capacity on the return trip.
The system keeps an up-to-date record of all prices offered by all carriers per route at any one time, and then as orders come in, it automatically offers the contract to the lowest-price carrier. If this carrier is unable to fulfil the job, the software automatically forwards the order to successive carriers until the best available price for the route is obtained.
To do this, the i2 software is tightly integrated with the existing SAP order management system and an external messaging system for communicating with carriers.
“More than 80 per cent of our freight movements are handled by our first, second or third-choice carrier for price on every route, and this is a key performance indicator for our business,” says Surtees.
The company expects to save £1 million a year by allocating transport contracts like this, while reducing mileage by 380,000 miles and cutting carbon dioxide emissions by 540 tonnes.
In addition, the company saves £1 million a year by not having to pay fees to its software provider for each truck movement scheduled.
Because of the flexibility and automation of the i2 solution, Kimberly-Clark has been able to increase its carrier base to 170 companies, while reducing its administration costs.
It now does business with more small and niche operators, who are often more competitive on certain routes and more likely to have return legs to fill.
“The more carriers you have, the less empty running you have and it’s a virtuous cycle,” says Surtees. “When we reduce the number of miles travelled on the company’s behalf, we directly contribute to a reduction in CO2 emissions.”