We’ve been doing a lot of research recently into how companies will manage resources, including the supply chain. My colleague Stephanie Overby was fortunate enough recently to get a chance to talk to Bill He of Kimberly Clark.
If you’ve ever wiped your nose with a Kleenex (growing up, I didn’t know there was such a thing as a tissue, all I knew to ask for was a Kleenex) or wiped your umm, (well never mind, you’ve probably heard of that brand, too) then you’ve heard of Kimberly Clark.
As you know (or can imagine), a huge, global brand that makes high-consumption, bulky, low-margin items such as bathroom tissue or disposable diapers has an insanely difficult supply chain challenge. Material and distribution costs must be as low as possible when you’re locked in a worldwide battle with a supply chain heavyweight like Procter & Gamble.
Stop beating up and start opening up
But He has a refreshing take on how to manage his suppliers: Get past the price. “The low-hanging fruit is gone,” says He, who is vice president of strategic sourcing for Kimberly-Clark. “You can only reduce procurement costs by 10 percent a year for so long.”
In fact, says He, companies looking for innovation from suppliers should not only ease up on the pricing pressure, they should open up as well. “As buyers, if we want to buy their ideas in addition to their products, we need to get comfortable with opening the books and allowing our suppliers a decent profit margin so they can sustain these new business relationships,” He says. “We want them to reinvest if we are looking to them for innovation. We have a long-term interest in their success because when they have success they can deliver value to us.”
Focus on co-innovation
For the past couple of years, the company has been rethinking its relationships with top suppliers with the goal of becoming a customer of choice. Instead of spending a majority of their time talking about price, Kimberly-Clark’s sourcing group sets commercial terms aside and spends the majority of time on information sharing and joint innovation. Today, about 50 percent of the company’s procurement value is delivered through collaboration with its strategic suppliers, compared to 30 percent just two years ago.
Ultimately, He would like the supplier-buyer relationship starts to look like the relationship between two departments in the same company.
Want innovation from suppliers? Here are four ways to get it:
- Identify tier-one suppliers, not simply based on total spend but on strategic value
- Spend less time on negotiating commercial terms, more on information and idea exchange
- Involve key suppliers in strategic planning and processes, particularly product development
- Work closely with strategic suppliers to help them improve their own competitiveness in both cost and quality
To learn more about how companies up and down the supply chain can collaborate, read the in-depth report Business Networks: The Platforms for Future Innovation.