{"id":21948,"date":"2017-11-13T20:45:40","date_gmt":"2017-11-14T01:45:40","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/loreal-a-gorgeous-supply-chain-makeover\/"},"modified":"2017-11-13T20:45:40","modified_gmt":"2017-11-14T01:45:40","slug":"loreal-a-gorgeous-supply-chain-makeover","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/loreal-a-gorgeous-supply-chain-makeover\/","title":{"rendered":"L\u2019Or\u00e9al: A Gorgeous Supply Chain Makeover"},"content":{"rendered":"

L\u2019Or\u00e9al: A Gorgeous Supply Chain Makeover<\/strong><\/span><\/h2>\n

L\u2019Or\u00e9al, the world’s largest cosmetics company[1], remains an acclaimed winner on the annual Gartner\u2019s Top 25 Supply Chains[2] ranking and a global leader in embracing operational innovation and digitalization. What you may ask, is the secret sauce to this beauty company\u2019s story of supply chain success?<\/span><\/p>\n

Understanding the Basics<\/em><\/span><\/h3>\n

L\u2019Or\u00e9al\u2019s operations are highly complex \u2013 with business across 140 countries, 150+ distribution centers, 42 factories, 34 brands, and 8 distribution channels (including hair salons, mass-market retailers, department stores, drugstores, e-commence, etc.)[3]. L\u2019Or\u00e9al\u2019s growth strategy requires a commitment to new product innovation (up to 50% of products refresh annually[4]) focused on new and emerging markets, expansion across e-commerce channels, and widened diversity of distribution. These unique challenges, present L\u2019Or\u00e9al\u2019s supply chain leaders with the need for great agility and adaptability to serve their ever-evolving customers worldwide. Leading industry transformation, L\u2019Or\u00e9al has invested in cutting-edge technology solutions and supply chain automation.<\/span><\/p>\n

Progress Through the Years<\/em><\/span><\/h3>\n

In 2014 Emmanuel Plazol, L\u2019Or\u00e9al\u2019s head of supply chain, told press \u201cour current approach of segmenting by distribution channel needed to evolve\u201d[5]. Therefore, L\u2019Or\u00e9al re-designed supply chain capabilities and implemented a world-class integrated information system that provided collaborative compilation of volume forecasts across sales, marketing, supply chain, and finance teams, which were then shared worldwide with their factory and distribution centers[6].<\/span><\/p>\n

The results[5], improved sales forecast accuracy rate of 60% to 71%, while logistics costs decreased, and shipments increased 40%+ over five years from 2009 to 2014. Intended to improve order precision and responsiveness across the supply chain, even L\u2019Or\u00e9al customers at shelf noticed the more efficient stock management[7] and in 2016 retailer\u2019s saw improved customer service levels by more than 2%, while holding inventory constant[4].<\/span><\/p>\n

Emmanuel Plazol said, \u201cWe thought the transformation would come only if our supply chain was close to the markets and customers, and was end-to-end. And for this to happen our supply chain had to cover from the customer to the factories\u201d[5].<\/span><\/p>\n

Beyond inventory management, L\u2019Or\u00e9al has felt the significant operational impact of e-commerce and \u201cchange in order profiles\u201d says Erik Rodriguez, director of supply chain for L\u2019Or\u00e9al Americas. \u201cThe sheer volume of orders has increased, but the lines per order has decreased. Additionally, there\u2019s pressure from our retail customers to reduce our lead times and improve our delivery times because they are running leaner inventories\u201d[8].<\/span><\/p>\n

To meet the needs of the dynamic market, L\u2019Or\u00e9al leverages automation like robotics and slotting software to mechanize their distribution centers globally[8]. By implementing these new solutions, L\u2019Or\u00e9al has stayed competitive in order fulfillment speed, reduced labor cost, continuous quality improvement, and meeting the surges during demand peaks. Now, what\u2019s ahead for L\u2019Or\u00e9al supply chain innovation?<\/span><\/p>\n

Strategy Recommendations<\/em><\/span><\/h3>\n

Without a doubt, L\u2019Or\u00e9al will continue to feel the pressure from the competitive landscape. L\u2019Or\u00e9al\u2019s 5%+ annual growth rate has caught the attention of small independent make-up labels piling into the market, noted in The New York Times[9]. Their supply chain transformation and digitalization most empower the company\u2019s success!<\/span><\/p>\n

As a power-house marketing company, L\u2019Or\u00e9al must put the customers need at the center of their supply chain strategy. They must observe, analyze, and predict consumer trends so they can quickly monetize the beauty industry\u2019s impulsiveness and spontaneity. I recommend:<\/span><\/p>\n

1. L\u2019Or\u00e9al should use scarcity to their advantage!<\/strong> If L\u2019Or\u00e9al approached each product line as a test-and-learn model, for instance, launching only twenty thousand units of the exclusive Gigi Hadid Maybelline Mascara in USA Target stores; they could predict sales forecasts by region, consumer target, color palette, etc. before launching globally. This fast-fashion apparel business model[10] applied to the beauty industry means less inventory, more collections, and greater flexibility to react to the changing tastes of fashion consumers.<\/span><\/p>\n

2. L\u2019Or\u00e9al should improve their direct-to-consumer sales channel!<\/strong> Today, L\u2019Or\u00e9al across its 34 brands, relies on the majority of sales to come from department stores, mass-market retailers, and drugstores. L\u2019Or\u00e9al\u2019s predominant e-commerce strategy has been sending consumers from their websites to Amazon.com, Walmart.com, or Target.com to purchase online \u2013 but as a result L\u2019Or\u00e9al forfeits control of the consumer experience, potential of higher margin, and strategic data analytics. L\u2019Or\u00e9al should make strides for a best-in-class e-commerce and omnichannel user experience, driving direct online sales for a stronger customer relationship and better data insights.<\/span><\/p>\n

3. L\u2019Or\u00e9al should build localized, entrepreneurial capabilities!<\/strong> The simple fact is Chinese beauty consumers demand something very different than Americans. L\u2019Or\u00e9al must react to regional differences in consumer preferences, while using the same foundational supply chain capabilities. I believe, segmented innovation and regional agility must be at the core of L\u2019Or\u00e9al\u2019s organizational culture. Therefore, L\u2019Or\u00e9al must build a supply chain for smaller production runs, quicker leadtimes, and more volatile demand cycles for localized market needs.<\/span><\/p>\n

<\/h3>\n

Key Outstanding Question<\/strong><\/em><\/span><\/h3>\n

How do you manage costs and margins against the chase for customization, speed, and flexibility in L\u2019Or\u00e9al\u2019s global supply chain?<\/span><\/p>\n

(Word Count 798)<\/span><\/p>\n

 <\/p>\n

SOURCES<\/strong><\/span><\/p>\n

[1] \u201cL’Or\u00e9al – Statistics & Facts.\u201d Statista Inc., The Statistics Portal, www.statista.com\/topics\/1544\/loreal\/.<\/span>
\n [2] \u201cGartner Announces Rankings of the 2017 Supply Chain Top 25.\u201d The Supply Chain Top 25, Gartner, Inc., 25 May 2017, www.gartner.com\/newsroom\/id\/3728919.<\/span>
\n [3] \u201cL’Or\u00e9al Key Figures.\u201d L’Or\u00e9al Group, www.loreal.com\/group\/our-activities\/key-figures.<\/span>
\n [4] \u201cThe 2016 Supply Chain Top 25: Lessons from Leaders.\u201d Supply Chain 24\/7, 19 Sept. 2016, www.supplychain247.com\/article\/the_2016_supply_chain_top_25_lessons_from_leaders.<\/span>
\n [5] Marle, Gavin Van. \u201cL’Or\u00e9al Completes Five-Year Supply Chain Transformation \u2013 ‘Because We’re Worth It’\u201d. The Loadstar, 9 Oct. 2014, theloadstar.co.uk\/loreal-supply-chain-transformation\/.<\/span>
\n [6] \u201cImproving Supply Chain Efficiency.\u201d L’Or\u00e9al Group, www.loreal-finance.com\/en\/annual-report-2015\/supply-chain.<\/span>
\n [7] \u201cL\u2019Or\u00e9al\u2019s Supply Chain Make-Over.\u201d PYMNTS, 15 Sept. 2014, www.pymnts.com\/in-depth\/2014\/loreals-supply-chain-make-over\/.<\/span>
\n [8] Trebilcock, Bob. \u201cL\u2019Or\u00e9al: To Automate or Not to Automate.\u201d Supply Chain 24\/7, 6 Oct. 2016, www.supplychain247.com\/article\/loreal_to_automate_or_not_to_automate\/forte_industries.<\/span>
\n [9] \u201cLuxury Cosmetics and Chinese Demand Drive Sales Bounce at L\u2019Or\u00e9al.\u201d The New York Times, 2 Nov. 2017, www.nytimes.com\/reuters\/2017\/11\/02\/business\/02reuters-loreal-results.html.<\/span>
\n [10] \u201cZara\u2019s \u2018Fast Fashion\u2019 Business Model.\u201d The Wharton School, The University of Pennsylvania, 18 Feb. 2016, kwhs.wharton.upenn.edu\/2016\/02\/zaras-fast-fashion-business-model\/.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

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