Cosmetics Logistics: The Beauty of an Optimized Supply Chain
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.
Beauty in Brazil
Brazil’s beauty and personal care market grew 15 percent in 2010, according to the 2013 Global Beauty Industry Trends in the 21st Century report. The country expects continued growth over the next several years, with an increase in specialized products and a broadening of sales channels.
Natura, one of the largest cosmetics companies in Brazil, uses a system of direct sales for its products, which include cosmetics, toiletries, and perfumes. The company’s supply chain supports a network of 1.4 million door-to-door sales consultants. With more than 17 million products sold in 2011, the business is experiencing rapid growth, which creates logistics challenges.
To help manage some of these challenges, the company recently turned to Penske Logistics, a third-party logistics (3PL) provider with U.S. headquarters in Reading, Pa. Specifically, Natura was looking to meet increased demand in two strategic states: Paraná and Santa Catarina.
The company needed to build a new distribution center, and wanted support throughout its entire supply chain, including warehouse management, hiring and managing specialized labor, and on-time delivery of placed orders.
Working together, Natura and Penske Logistics created one of Brazil’s most modern distribution centers and supply chains within the cosmetics industry. The new facility features a storage capacity of 4,000 pallet positions, and ships 330,000 units daily.
The company also reduced delivery time. Previously, average delivery time was three to five days in the capital of Paraná and its metropolitan area. Working with Penske Logistics, the company cut shipping time to one day in that region. The outsourcing arrangement also introduced express delivery, allowing same-day delivery for some products, depending on the time they were ordered and stock availability.
Paula’s Choice: An East Coast Distribution Partner
At the age of 25, Paula Begoun was so frustrated with the quality of skin care products on the market, she decided to do something about it. Begoun conducted some research, examined ingredients, investigated the sources of products, and uncovered other secrets of the beauty and skin care industry.
Using that information, Begoun founded Renton, Wash.-based makeup and skin care products company Paula’s Choice in the mid-1990s, and became a nationally recognized consumer expert for the cosmetics industry.
Paula’s Choice has grown steadily since its inception. In 2013, private equity firm Bertram Capital purchased the majority share of the company, setting the stage for even more significant growth.
From the beginning, Paula’s Choice has sold direct to consumers via the Internet. But the company’s expansion plans as part of the Bertram Capital investment involve transforming from an online-only brand to one available via brick-and-mortar stores and, potentially, home shopping. As a result, the company’s logistics needs are changing. Currently, all distribution is done through a company-owned West Coast distribution facility near Seattle. The company also exports to a network of distributors globally.
“Our DC is at the northwestern corner of the United States, and many of our customers are east of the Mississippi,” says Jon Hughes, director of operations for Paula’s Choice. “Our warehouse team is great, but regardless of how fast they got orders out the door, we needed a second distribution point.”
The company recently spent nine months searching for a logistics partner, eventually choosing to work with King of Prussia, Pa.-based eBay Enterprise to open an East Coast distribution center.
“We were looking for a proven Internet fulfillment company with locations that could serve our customer base, and improve our already fast delivery times,” says Hughes. “We also needed the scale for our growing order volume, technology infrastructure for timely integration with our system, and a variety of value-added services.”
Hughes visited a handful of cities and spoke to dozens of vendors before deciding on eBay Enterprise. A larger beauty brand with several lines is fulfilled at one of eBay Enterprise’s facilities, and that was a big selling point for Paula’s Choice. Still, turning over a huge portion of the company’s distribution will require some adjustment.
“We aren’t eBay Enterprise’s only customer, so we have to be in constant contact with them about our requirements and forecasts to ensure we have the manufacturing and inbound trucking capacity we need,” says Hughes.
Paula’s Choice recently completed final testing with eBay Enterprise, and expects to soon ship its first order from Shepherdsville, Ky.