L’Oréal’s Supply Chain Make-Over

French cosmetics manufacturer L’Oréal has finally finished off a massive redesign of its corporate supply chain with one simple goal in mind—getting better data about both its buyer and consumer relationships.  Simple goals have a way of becoming very complicated in execution and the end-to-end redesign of their supply chain called for changes that were more than…well, cosmetic.

At times, it also seemed a goal that would be outside of L’Oreal’s corporate reach, the company’s corporate head of supply chain, Emmanuel Plazol, told delegates in a keynote speech at a Gartner supply chain conference in London on Monday (Sept. 10)

“It has been very, very difficult. We tried to jump too high at the beginning. We originally had two objectives: to improve the quality of data and also make some productivity improvements in data management. This was a big mistake. We created a very complex process and tools, and to deploy the new workflows was a nightmare. So went back to concentrating on quality of data,” he said according to The Load Star.

The focus on data felt like a necessary switch for the world’s largest cosmetics manufacturer to make—as its B2B and B2C businesses are facing a world that is rapidly changing.  Those changes comes in the form of changing buying habits among consumers in established markets, but to an even greater extent, the markets are moving due to exploding middle classes in emerging markets.  This has created both a new base of consumers suddenly calling for the range of products international enterprises like L’Oréal have to offer as well as an emerging class of intermediate merchants that need to be supplied to put those goods into the hands of consumers, whereever they may be.

“Our customers, beauty product retailers, face new challenges from consumers with quickly evolving expectations. The beauty consumer base is shifting, due to the booming middle class in emerging markets and the increasing age of consumers in developed markets.”

L’Oréal first re-orged the supply chain so that its organizing principle was no longer the end target of the goods—prior to the upgrade, supply channels corresponded to the company’s four main product lines– professional products sold to hairdressers; consumer products; the L’Oréal Luxe for department stores; and the active cosmetics products that are sold through pharmacies.  Post re-design instead builds the supply chain around proximity.

“In each market, we now have supply chain teams dedicated to customers and reporting directly to the general manager of the market and we can thus build proximity and accountability of the supply chain to both sales and finance.”

Changing the organizing principle for a supply chain of 7,000 people serving 130 markets, operating 150 distribution centers globally and about 40 factories was not easy. Yet even more challenging was changing the function of the supply chain managers so that their data was used in forecasting functions that previously had been siloed in marketing or sales functions.

Yet tapping into supply chain data has paid off for L’Oréal’s bottom line.  According to Plazol, the sales forecast accuracy rate of 60 percent in 2009 increased to 71 percent this year, as a direct result of the supply chain redesign. Meanwhile, logistics costs have declined even though shipments during the same time period by some increased by around 40 percent.

“The process of factory-to-customer is now orchestrated by the supply chain with the help of sales, marketing and finances departments. We don’t create numbers just for operations, but to control the business,” he said.