L’Oréal: A Gorgeous Supply Chain Makeover
L’Oréal, the world’s largest cosmetics company, remains an acclaimed winner on the annual Gartner’s Top 25 Supply Chains ranking and a global leader in embracing operational innovation and digitalization. What you may ask, is the secret sauce to this beauty company’s story of supply chain success?
Understanding the Basics
L’Oréal’s operations are highly complex – 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.). L’Oréal’s growth strategy requires a commitment to new product innovation (up to 50% of products refresh annually) focused on new and emerging markets, expansion across e-commerce channels, and widened diversity of distribution. These unique challenges, present L’Oréal’s supply chain leaders with the need for great agility and adaptability to serve their ever-evolving customers worldwide. Leading industry transformation, L’Oréal has invested in cutting-edge technology solutions and supply chain automation.
Progress Through the Years
In 2014 Emmanuel Plazol, L’Oréal’s head of supply chain, told press “our current approach of segmenting by distribution channel needed to evolve”. Therefore, L’Oréal 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.
The results, 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’Oréal customers at shelf noticed the more efficient stock management and in 2016 retailer’s saw improved customer service levels by more than 2%, while holding inventory constant.
Emmanuel Plazol said, “We 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”.
Beyond inventory management, L’Oréal has felt the significant operational impact of e-commerce and “change in order profiles” says Erik Rodriguez, director of supply chain for L’Oréal Americas. “The sheer volume of orders has increased, but the lines per order has decreased. Additionally, there’s pressure from our retail customers to reduce our lead times and improve our delivery times because they are running leaner inventories”.
To meet the needs of the dynamic market, L’Oréal leverages automation like robotics and slotting software to mechanize their distribution centers globally. By implementing these new solutions, L’Oréal has stayed competitive in order fulfillment speed, reduced labor cost, continuous quality improvement, and meeting the surges during demand peaks. Now, what’s ahead for L’Oréal supply chain innovation?
Without a doubt, L’Oréal will continue to feel the pressure from the competitive landscape. L’Oréal’s 5%+ annual growth rate has caught the attention of small independent make-up labels piling into the market, noted in The New York Times. Their supply chain transformation and digitalization most empower the company’s success!
As a power-house marketing company, L’Oréal 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’s impulsiveness and spontaneity. I recommend:
1. L’Oréal should use scarcity to their advantage! If L’Oréal 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 applied to the beauty industry means less inventory, more collections, and greater flexibility to react to the changing tastes of fashion consumers.
2. L’Oréal should improve their direct-to-consumer sales channel! Today, L’Oréal across its 34 brands, relies on the majority of sales to come from department stores, mass-market retailers, and drugstores. L’Oréal’s predominant e-commerce strategy has been sending consumers from their websites to Amazon.com, Walmart.com, or Target.com to purchase online – but as a result L’Oréal forfeits control of the consumer experience, potential of higher margin, and strategic data analytics. L’Oréal 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.
3. L’Oréal should build localized, entrepreneurial capabilities! The simple fact is Chinese beauty consumers demand something very different than Americans. L’Oréal 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’Oréal’s organizational culture. Therefore, L’Oréal must build a supply chain for smaller production runs, quicker leadtimes, and more volatile demand cycles for localized market needs.
Key Outstanding Question
How do you manage costs and margins against the chase for customization, speed, and flexibility in L’Oréal’s global supply chain?
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 Trebilcock, Bob. “L’Oréal: To Automate or Not to Automate.” Supply Chain 24/7, 6 Oct. 2016, www.supplychain247.com/article/loreal_to_automate_or_not_to_automate/forte_industries.
 “Luxury Cosmetics and Chinese Demand Drive Sales Bounce at L’Oréal.” The New York Times, 2 Nov. 2017, www.nytimes.com/reuters/2017/11/02/business/02reuters-loreal-results.html.
 “Zara’s ‘Fast Fashion’ Business Model.” The Wharton School, The University of Pennsylvania, 18 Feb. 2016, kwhs.wharton.upenn.edu/2016/02/zaras-fast-fashion-business-model/.