E2open : Five ways beauty supply chains can handle the shake-up in make up

Patrick Lemoine, Vice President, Customer Solutions, E2open - Friday 27 February 2015

The cosmetics and beauty market has witnessed dramatic changes over the past two decades, which mirror the various economic, social, and cultural shifts taking place around the world. In this highly competitive marketplace, brand owners are in the constant pursuit of the right strategies to broaden their consumer bases.

As part of their growth strategy, leading cosmetics and beauty products companies have both embraced 'omni-channel retailing' and 'high product differentiation' as two key strategies to penetrate new markets around the world. But with the promise that these approaches bring, there also come a number of challenges, including an increase in demand volatility that has created headaches for supply chain practitioners.

Furthermore, while the beauty business is growing very rapidly, it faces additional challenges, such as sub-par service levels, excess inventories, heavy discounting, and write-offs. In addition, promotions often strain the supply line and delayed product introductions leave the door open for competitors to grab market share.

As customers' preferences quickly change, supply chains that focus on improving service levels through effective product allocation by channel are the ones most likely to succeed in satisfying those needs. Having the ability to commit with confidence to demand as it rapidly changes based on accurate procurement capabilities is therefore a key differentiator for these successful companies.

In the highly competitive cosmetics and beauty industry, complexity reigns supreme. To attract new customer groups, brands are motivated to develop more segmented products that can also vary widely across geographies. As brands bring new products and special promotion items to market, the number of SKUs is exploding. Unfortunately for the brand owners, these trends only increase demand volatility.

When faced with shorter product life cycles and demanding retailers, smaller and more frequent deliveries are preferable, but to be successful in this approach, companies need the ability to connect highly volatile demand to their supply capabilities. To address this, companies have tended to add more inventory closer to customers, which in turn increases costs. But, if poorly managed, customer service levels will be unpredictable and expediting costs inevitably increase, ultimately impacting financial results.

To address these industry-specific challenges, cosmetics and beauty companies should consider adopting the following approaches:

1. Allocate the right products to the right channels based on actual customer demand and precise segmentation through better retail collaboration.
2. Become more predictable by using replenishment models that leverage workflows and advanced demand-driven strategies embedded within core business processes.
3. Reduce lead times by making the current and future supply situation more visible, sharing key metrics, and managing exceptions collaboratively.
4. Make suppliers accountable by defining pricing structures that tie to service levels, monitoring spend against budgets, and continuously tracking service levels associated with service providers' commitments (for example, transportation, contract manufacturers, and suppliers).
5. Begin the end-to-end supply chain journey as early as possible (ideally, in the new product development phase).

The competitive game in the cosmetics and beauty industry is no longer brand versus brand nor company versus company; it is now network versus network. The leading companies are already leveraging the power of cloud-based platforms, which enable businesses to collaborate with suppliers, retailers, and all other trading partners across their supply networks. Furthermore, they leverage advanced planning, order promising, and replenishment technologies to increase their market share. In this industry, these are truly beautiful benefits.