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, businesses are under pressure to deliver improved cash management, excellent on-counter availability, lower Costs of Goods (COGS), and reduce inventory.

High-end consumers are demanding continuous innovation. New packaging technologies expand the creative designers’ pallet 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 needs 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 distribution center.

However, ever 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 time line 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.

Bill Kunz, Senior Vice President Global Supplier Relations, The Estee 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 score cards are honored. Margin improvement from efficiency savings are shared by all in innovative ways.

Cosmetic manufactures 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.

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 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 amongst partners. Multiple touch points on the Supply Chain with overlapping activities can be eliminated through collaborative 24×7 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 Manufactures and Suppliers to collaborate on : exceeding customer values, achieving faster speed to market, improving operating margins, accelerating cash-to-cash cycle time, reduce 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.”[1]

The S&OP, Sales and Operations Planning process, enables a general manage to drive organizational improvement. S&OP aligns demand with supply plans by changing the strategic plan to handle market forces. By applying the S&OP process the general manager will see clearer linkages between the business plan and operating units. This linkage along with better communication yields more realistic plans.

A company without a process like S&OP typically faces disconnects between the business plan, sales activities and the operation unit’s ability to support the business plan at the right price and unit availability. Each day, new threats and opportunities appear for sales and marketing to handle. The strategic plan may need to be adjusted to meet the new environment. Finance may be called in to support changes. To make a complete decision, the general manager also needs include the organization that delivers the product or service. The objectives of S&OP lay the foundation for sharing the right information, measuring the right performance, and adjusting to the changed market environment on a periodic (at least monthly) basis.

Objective 1: Support and measure the business plan. Perform a thorough review of the market place to see that the sales plan and operations plans are in sync with the marketplace

Objective 2: Ensure the plans are realistic: With the right representation from each department, discussions about what can be supported occur and a solid set of department plans can be created based on real numbers and capabilities

Objective 3: Effectively manage change:  Looking at market changes proactively enables the company using S&OP to meet or exceed their business plan more often. Necessary changes are communicated to the right departments and supported the general manager is able to manage up to the strategic plan, down to the details and across the organization

Objective 4: Better manage supply: The general manager and staff can work together to establish supply targets against the most accurate demand requirements.

Objective 5: Measure performance: Its critical to measure performance against plans that are valid and attainable. This will insure managers are accountable.

Objective 6: Build team work: When the general manager supports the S&OP process sharing in training, meeting setup, attendance, and decision making he/she can link more closely with the business units. Because the business leaders see the general manager takes an active role then they will participate in the S&OP process, reach better decisions, and achieve their goals.

The S&OP process can be applied to product and service companies. Consider  the core goal: align demand and supply to match an ever changing business environment.  All businesses need to achieve this goal.

Here are several business types, a brief description of their supply and demand, and which departments would participate in S&OP.

Traditional Manufacturer, customers request product which the manufacturer either makes-to-order or makes-to-stock.

S&OP Participants: Sales, Marketing, Finance, Forecasting, Manufacturing, Distribution

A marketing firm with 3rd party Production designs products, markets them and then places orders on their suppliers. They may hold inventory to protect against volatility of supply and demand.

S&OP Participants: Marketing, Sales, Finance Distribution, 3rd Party Manufacturing.  So, in this case, S&OP can include critical partners outside of the business.

Technology Consulting Firm

Works with customers to solve business problems through business and process change solutions. This business supplies people to analyze and implement solutions at their customers.

S&OP participants: Business Sector/Industry Partner, Marketing, Human Resources, and Training.

Healthcare Provider

Provides patients with health-care solutions including beds, doctors,  medicines, and tools to apply solutions and monitor results. All resources have capacity constraints. Human resources is part of the “supply chain” providing the specialists needed to handle patient demand.

S&OP participants: Health Care Specialist Leadership, Human Resources, Facilities Management, Inventory Controller, Finance, Warehousing, Finance, and key suppliers

The above businesses have dramatically different demands which are satisfied by internal and external suppliers. They all have a common requirement in that demand can and does change. The S&OP process enables all of them to react to those changes more effectively.