Cosmetics Logistics: The Beauty of an Optimized Supply Chain

Tags: 3PL, Inventory Management, Retail, Distribution, Packaging, E-commerce

Cosmetics bottles

Makeup and skin care companies follow a multi-step logistics routine to manage retailer requirements and smooth the wrinkles caused by supply and demand friction.

The cosmetics and skin care industry wages a constant tug-of-war battle between supply and demand. Beauty product consumers can be fickle—today's hot cosmetics product may be out of vogue tomorrow. Beauty and skin care companies relentlessly promote the latest trends, often enlisting celebrities to help them. Once they generate demand, they must ensure those products are on the shelves and available for purchase while they are hot. Handling products to the point of sale is critical, and requires punctual and reliable transportation, storage, and distribution.

"Beauty consumers want their hot product now, and they do not want to wait," says Paul Cali, director of North American logistics at New York City-based cosmetics and skin care company Avon. "Logistics plays a key role in driving customer satisfaction, which is a competitive advantage."

Managing cosmetics logistics requires expertise in numerous areas. "To thrive in the current business climate, cosmetics logistics managers and third-party logistics (3PL) providers must handle high volumes of product, understand temperature and handling restrictions, navigate licenses, and ensure on-time delivery at a competitive cost," says Fabrício Orrigo, sales director for Penske Logistics South America.

Visibility gets a facelift

The fast pace of the cosmetics and skin care industry creates a number of logistics and supply chain challenges. Efficient supply chain management is critical, yet because most cosmetics and skin care companies use contract manufacturers, visibility into logistics and transportation can be a major obstacle.

"Sometimes, when a product leaves the distribution center, it disappears into a big black hole," says Valerie Bonebrake, senior vice president at Raleigh, N.C.-based supply chain consultant Tompkins International.

Tompkins works with several large, multinational companies that distribute products around the globe, and often don't have much control over that final link in the supply chain. Some of these companies are turning to transportation management systems (TMS) to help smooth the flow of goods and improve visibility.

"Cosmetics companies have to understand the process before they can improve it or reduce costs, and that comes down to good information management," Bonebrake says.

In Brazil—one of the largest and fastest-growing beauty markets in the world—Penske Logistics uses a TMS to help a large cosmetics client manage on-time delivery of products to customers, dealers, and retailers in big cities such as São Paulo, Recife, and Rio de Janeiro where traffic congestion can create an enormous obstacle, causing tranporation delays that erode profits.

"TMS and route mapping tools provide shippers with accurate simulations, transportation optimization, and cost reductions," says Orrigo.

easing warehouse worries

Warehouse management is another important aspect of the cosmetics and skin care industry, as some products are perishable or need refrigeration. The industry is also heavily regulated, and 3PLs need certain licenses to handle products.

In some cases, pharmacists are enlisted to ensure compliance. For example, Penske Logistics employs an on-site pharmacist within its cosmetics client's warehousing operations to oversee processes such as product shelf-life, health conditions, hygiene, and packaging that ensure regulatory compliance.

getting a Stream TREATMENT

Health and beauty care products are often sold into a variety of retail streams. Larger companies frequently target four markets: consumer products to mass retailers and chain drugstores; beauty supplies to salons and professional product groups; luxury brands to department stores and boutiques; and dermatological products through dermatologists.

While large wholesalers often look for less-than-truckload and truckload deliveries, smaller buyers may rely instead on parcel and expedited shipments.

Different mass retailers also often necessitate different packaging. In a large retail or chain drugstore, packaging is critical to helping a product stand out. Various packaging shapes and sizes are the norm—sometimes even for the same product.

"Cosmetics companies working with the mass marketing channel might need to package a product in a three-pack for Target and a two-pack for Walmart," says Bonebrake. "The question becomes: if it's the same product and it will just be presented differently, can packaging be done closer to demand to keep inventory more generic?"

Some cosmetics companies achieve this result by using 3PLs implement packaging postponement strategies.

"Postponement allows companies to package items closer to demand, and that can also include specialized displays and promotional features," says Bonebrake. "Promotions are critical in the beauty industry, so cosmetic and skin care companies are paying more attention to how they can accomplish those initiatives affordably."

Marketing vs. Logistics makeover

Because the beauty business is market-driven, marketing drives many beauty companies. Cosmetics companies that plan ahead, and encourage marketing and logistics functions to work together, may have a better chance at successfully completing their missions more cost effectively.

"When marketing engages logistics on the front end of a campaign, they can help determine the best way to manage the projections and timing, and not operate in a reactionary mode," says Bonebrake.

Avon works with Seattle-based third-party logistics company Lynden, which provides order-to-cash solutions, order fulfillment, and warehouse management for the health and beauty care industry.

"One challenge the cosmetics industry faces is fully aligning the commercial side of the business with key customer requirements, then developing a logistics strategy that balances the service and cost relationship to gain a competitive advantage," says Avon's Cali. "One solution is a robust sales and operations planning process that brings all cross-functional partners together in sharing a common vision, and places accountability for execution within the process."

Whether a cosmetics company sells to the mass market, specialty retail, or via e-commerce, taking transportation and logistics considerations into account is critical to easing the perpetual tug-of-war between supply and demand.