11.05.09
DESIGNING FOR SUPPLY CHAIN
Today’s supply chain poses complex problems that demand a new approach to resolving them. This method boasts multiple benefits for both cosmetic manufacturers and suppliers.
Written by Frank Murphy, CSCP (L), and Keith Carter (R) MBA, executive director, global supply chain, materials management systems, The Estée Lauder Companies, Inc.
Prestige cosmetics, like all fashion sector products, wrestles with tight concept-to-market calendars, rapid product lifecycles, and significant seasonality. In this challenging business environment, companies are under pressure to deliver improved cash management, provide excellent oncounter availability, lower costs of goods (COGS) and reduce inventory.
High-end consumers are demanding continuous innovation. New packaging technologies expand the creative designers’ palette to fulfill the consumers’ desire for beauty. Research laboratories keep the development pipeline filled with fabulous breakthrough formulations that are invariably complex. Manufacturing to exacting quality standards often presents challenges of its own. All of these have to be achieved within strict monetary limits to prevent business value erosion.
These contradictory and yet immutable needs of the supply chain pose an increasingly complex problem that requires a new approach to resolving them.
The simplest and most apparent solution to this is to contain the “waste” in the processes involved, driving out all non-value adding activities. However, achieving this has only been sporadically successful, and requires a different approach than has been practiced so far.
The right approach is an integrated and collaborative process calling out the highest level of collaboration at the earliest point in the product lifecycle, and which continues through the entire supply chain process (Plan/Source/Make/ Deliver/Return).
In this approach, designing a product would not only focus on the needs of the consumer, but would also integrate the capabilities and the impact of any new design/product on the supply chain. The “Designing for Supply Chain” approach is essential in enabling the elimination of “wasteful” processes in the Product Development and Delivery cycle.
As a concept, companies using it assemble design teams including: Creative, Formula Development, Packaging, Component Material Suppliers and Manufacturing & Logistics Engineering. The teams consider any issue arising from the raw material sourcing through manufacturing, to distribution, to the discontinuation stage of the Product Lifecycle. Failure to collaborate by “Designing for Supply Chain” often results in wasteful re-engineering as projects are “thrown over the wall” from one functional silo to the next. In worst-case scenarios, costly ad-hoc fixes are required on the production floor and in the distribution center.
However, lowering of costs of entry and flattening of the global marketplace drives relentless pressure on margin. Sustaining long-term growth can no longer be accepting of the costs of practice deviations of re-working finished goods, additional labor, and airfreight, for last-minute design changes.
These inefficiencies are avoided when all the partners start working together early in the process. They can commit to a realistic timeline with agreed milestones by all stakeholders. The final design is locked down with unambiguous specifications across the component profile. There are no surprises on the production floor and pipeline quantities are available to support advertising breaks.
Recent Success
Bill Kunz, senior vice president global supplier relations, The Estée Lauder Companies, Inc., citing a recent launch using the “Designing for Supply Chain” concept, said, “We collaborated with suppliers during a major fragrance launch last year. This allowed us to bring the strategic supply base together to ensure the package designed could be commercialized to consumer expectations. Suppliers representing glass bottle, plastic closure, pump and outer packaging performed value engineering up-front in the design cost feasibility stage of development. The result was a very successful, smooth and profitable launch.”
To implement “Designing for Supply Chain” a company needs to make the right investments in relationships and technology.
Relationships built on trust and collaboration can only be developed when partners’ plans and actions are seamlessly aligned together. Preferred agreements and supplier scorecards are honored. Margin improvement from efficiency savings is shared by all, in innovative ways.
Cosmetic manufacturers gain the greatest and quickest benefit from partnerships with their suppliers of the most complex/critical packaging materials. The short turnaround times for the product development teams translate into even shorter times for suppliers due to lessened design changes.
Identify Inefficiencies
By bringing suppliers into the design process early, they can identify inefficiencies in supply, highlight conflicts in design, give ideas on cost-savings opportunities, share best practices from other projects, reach into their supply base to design unique materials, adequately QA test—which will improve delivery—and recommend sustainable packaging options
The full benefits of “Designing for Supply Chain” cannot be realized without robust technology. Early product lifecycle collaboration requires seamless data sharing among partners. Multiple touch points on the supply chain with overlapping activities can be eliminated through collaborative 24x7 IT systems communicating specifications, delivery forecasts, advanced shipment notices and quality notifications. With gains in operating margins coming from better products and less redundancies, the manufacturers can take a longer-term view of the supplier relationship, one focused on collaboration and value-added services, rather than finding the lowest bidder. Suppliers also gain from the streamlined development cycle and identification of savings within their supply chain. These benefits enable both parties to financially support deep collaboration and derive its full benefits.
“Designing For Supply Chain” enables manufacturers and suppliers to collaborate on exceeding customer values, achieving faster speed to market, improving operating margins, accelerating cash-tocash cycle time, reducing waste and creating opportunities for sustainable “green” packaging.
These measurable gains all contribute to improving the operating margin. According to Debra Weinswig of Citi Investment Research, “Improving operating margin can greatly enhance earnings per share growth, which is a primary focus on Wall Street.” (Source: Retail technology: “The view from Wall Street,” www.sas.com/news/feature/ retail_wallstreet.html
