Executive Overview
Household and Beauty Products brands dominate our daily lives. For the Household Products industry, this includes items like diapers, laundry detergent, paper towels, while Personal Products brands include Beauty (cosmetic) items, vitamins, shampoo, toothpaste and over-the-counter drugs. These two segments have similar manufacturing processes, but very different supply chain metrics considerations. As will be seen in this report, the flows of cash and inventory are significantly slower in the Beauty Products companies than Household Products.
Progress is tough. Companies in both industries are stuck. Traditional supply chain thinking is not equal to the challenge of driving a step change in performance. Companies struggle to drive improvement in the face of growing complexity. Digital disruption offers promise to move these industries to the next level of supply chain excellence, but few are ready to drive the step change in thinking. Most operate in functional silos. The building of outside-in processes to sense and adapt is new. Organizations are busy on traditional software deployments, and the adoption of new technologies like cognitive computing and the Internet of Things (IOT) lacks sponsorship.
Figure 1. Commodity Volatility
There are three primary shifts:
1) Rising Commodity Costs. In the 1990s, supply chain leaders experienced the shift from regional to global supply chains. In the last decade, the key to driving a competitive advantage was aligning and synchronizing the supply chain to manage material spend, and the network response in the face of ever-changing demand. Few do this well. Most companies are stuck in functional metrics and inside-out processes. They are unable to manage the rising commodity costs and volatility shown in Figure 1. To combat volatile commodity prices, supply chain flows need to be built market-to-market (from consumer to supplier). This capability is beyond the traditional ERP-centric view of an integrated supply chain. The flows are outside-in, while traditional processes are inside-out.
2) Shift in Consumer Expectations. In parallel, the rules of engagement with the consumer are changing. Consumers want brands they can trust. This includes eco-friendly products, safe for their family, with minimal environmental impact. The evolution of brands like “Honest” is changing the landscape of competition. The new shopper wants to scan the shelf and see the source of origin. This level of visibility is not possible in today’s supply chains.
3) Rise in Complexity. The variance of products offered in this industry has been a real problem for companies. This complexity adds cost, increases demand volatility, and creates uncertainty. The average Household Products company added 38% more items to the item master over the past five years .
As a result, it was difficult to maintain performance in either industry segment.
Falcon Invoice Discounting: Empowering Your Business Growth
Supply Chain Metrics That Matter: A Focus on Household, and Beauty, Products Companies - 2017
1. A Focus on Household, and
Beauty, Products Companies
A Seven-Year View of Progress on Supply Chain Excellence
2/5/2018
By Lora Cecere
Founder and CEO
Supply Chain Insights LLC
and Samuel Borthwick
Research Associate
Supply Chain Insights LLC
Supply Chain Metrics That Matter
2. Page 2
Contents
Research
Disclosure
Executive Overview
A Closer Look at the Industries
Progress Versus Other Industries
Examining Household and Beauty Products Growth
Value
Performance
Cash-To-Cash Cycles
Industry Focus
Recommendations
Conclusion
Appendix
Other Reports in This Series
About Supply Chain Insights LLC
About Lora Cecere
About Sam Borthwick
Endnote
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3. Page 3
Research
Supply Chain Metrics That Matter is a series of reports published throughout the year by Supply
Chain Insights LLC. Each report in the series is a deep analysis of supply chain performance within
an industry. This report focuses on the Household Nondurables (Household Products) and Personal
Products-Beauty (Beauty) industries for the seven-year period of 2010-2016. Here we analyze the
trade-offs to balance growth, profitability, cycles, and complexity.
Within the world of supply chain management, each industry is unique. As a result, it is dangerous to
list all industries in a spreadsheet and declare a supply chain leader. Instead, we believe supply chain
excellence needs to be evaluated based on a balanced portfolio of metrics, over time, by the peer
group. In this series of reports, we analyze the potential of a supply chain peer group, share insights
from leaders within each industry, and give recommendations based on general market trends.
Disclosure
Your trust is important to us. As such, we are open and transparent about our financial relationships
and our research process. This independent research is 100% funded by Supply Chain Insights.
These reports are intended for you to read, share, and use to improve your supply chain decisions.
Please share this data freely within your company and across your industry. All we ask for in return is
attribution when you use the materials in this report. We publish under the Creative Commons
License Attribution-Noncommercial-Share Alike 3.0 United States, and you will find our citation policy
here.
4. Page 4
Executive Overview
Household and Beauty Products brands dominate our daily lives. For the Household Products
industry, this includes items like diapers, laundry detergent, paper towels, while Personal Products
brands include Beauty (cosmetic) items, vitamins, shampoo, toothpaste and over-the-counter drugs.
These two segments have similar manufacturing processes, but very different supply chain metrics
considerations. As will be seen in this report, the flows of cash and inventory are significantly slower
in the Beauty Products companies than Household Products.
Progress is tough. Companies in both industries are stuck. Traditional supply chain thinking is not
equal to the challenge of driving a step change in performance. Companies struggle to drive
improvement in the face of growing complexity. Digital disruption offers promise to move these
industries to the next level of supply chain excellence, but few are ready to drive the step change in
thinking. Most operate in functional silos. The building of outside-in processes to sense and adapt is
new. Organizations are busy on traditional software deployments, and the adoption of new
technologies like cognitive computing and the Internet of Things (IOT) lacks sponsorship.
Figure 1. Commodity Volatility
5. Page 5
There are three primary shifts:
1) Rising Commodity Costs. In the 1990s, supply chain leaders experienced the shift from regional
to global supply chains. In the last decade, the key to driving a competitive advantage was aligning
and synchronizing the supply chain to manage material spend, and the network response in the
face of ever-changing demand. Few do this well. Most companies are stuck in functional metrics
and inside-out processes. They are unable to manage the rising commodity costs and volatility
shown in Figure 1. To combat volatile commodity prices, supply chain flows need to be built market-
to-market (from consumer to supplier). This capability is beyond the traditional ERP-centric view of
an integrated supply chain. The flows are outside-in, while traditional processes are inside-out.
2) Shift in Consumer Expectations. In parallel, the rules of engagement with the consumer are
changing. Consumers want brands they can trust. This includes eco-friendly products, safe for their
family, with minimal environmental impact. The evolution of brands like “Honest” is changing the
landscape of competition. The new shopper wants to scan the shelf and see the source of origin.
This level of visibility is not possible in today’s supply chains.
3) Rise in Complexity. The variance of products offered in this industry has been a real problem for
companies. This complexity adds cost, increases demand volatility, and creates uncertainty. The
average Household Products company added 38% more items to the item master over the past five
yearsi
.
As a result, it was difficult to maintain performance in either industry segment.
6. Page 6
A Closer Look at the Industries
When we first started the research for the Supply Chain Metrics That Matter report series, we
believed that through the combination of an investment in technology, people, and process,
companies could drive improvement in inventory turns and operating margin as shown in Figure 2. As
will be seen in this report, this is not the case in the Household Products and Beauty industries.
Figure 2. Driving Performance Improvement
Among Household Products and Beauty companies, Church & Dwight Company and L’Oréal S.A. are
supply chain leaders, driving both performance levels, and rates of improvement higher than their
industry peer group.
To understand supply chain excellence, let’s look at year-over-year patterns in metrics performance
through visualization via orbit charts. To understand an orbit chart, let’s examine Figure 3. Here the
performance of The Procter & Gamble Company (P&G) and The Clorox Company (Clorox) is charted
year-over-year at the intersection of inventory turns and operating margin. The patterns are used to
define supply chain excellence. As can be seen, the average operating margin for P&G for the period
of 2004-2016 is 19%, while Clorox is lower at 17%. Inventory turns for P&G are 5.83 versus 8.19 for
Clorox. Notice that both P&G and Clorox are tightly coiled, and while both are trending the right way,
neither company is making remarkable progress towards the “Best Scenario.”
7. Page 7
Figure 3. Orbit Chart of Procter & Gamble vs Clorox
Orbit charts and their patterns tell the story. It is a tale of year-over-year metrics changes. In a similar
manner, note the patterns of Revlon, Inc. (Revlon) and the Estée Lauder Companies Inc. (Estée
Lauder) in Figure 4. While neither company shows improvement, Revlon shows wide swings in the
orbit chart, representing a lack of consistency and the inability to be resilient. In this comparison,
Estée Lauder has tight swings that translate to better consistency.
8. Page 8
Figure 4. Orbit Chart of Revlon vs Estée Lauder
Progress Versus Other Industries
The Supply Chains to Admire methodology, and the Metrics That Matter research, rewards
companies that show improvement while outperforming their peer groups on the metrics of growth,
operating margin, inventory turns and Return on Invested Capital (ROIC). Companies with tight
upward patterns at the intersection of the metrics are highlighted as winners, while companies with
wide swings and backward progression are penalized.
To help companies understand supply chain excellence through the insights of orbit chart
performance, we developed the Supply Chains to Admire analysis. An overview of the methodology is
shared in Figures 5 and 6, with a complete discussion in the full Supply Chains to Admire 2017
report.
9. Page 9
The company within the Household and Beauty Products industries that performed well enough to be
a WINNER in the 2017 Supply Chains to Admire was L’Oréal S.A.; while Estée Lauder, Inter
Parfums, Inc. and Church & Dwight Company, Inc. were recognized as Finalists.
Figure 5. Overview of the Supply Chains to Admire Analysis
Figure 6. The 24 Winners of the 2017 Supply Chains to Admire Analysis
10. Page 10
Examining Household and Beauty Products Growth
Looking at Table 2, it can be seen that growth for the Household Products companies during 2004-
2006 was 10%, and decreased to 6% during the peak of the Great Recession during 2007-2009. The
industry finally saw a sharp decline during the 2010-2016 period when growth fell to 3%. In the past
seven years, average growth is 1/3 that of the pre-recessionary period.
Table 1. Growth and the Supply Chain Index in the Household Products Industry
Growth in the Beauty Products industry suffered greatly during the 2004-2016 period due to Beauty
Products being luxury items. As seen in Table 2, Growth was healthy at 9% during 2004-2006, while
it fell to a devastating 1% during the post-recessionary period.
Table 2. Growth and the Supply Chain Index for Beauty Companies
The Supply Chain Index is a measure of supply chain improvement. The lower the score, the faster
the rate of metrics improvement at the intersection of inventory turns and operating margin, and
Return on Invested Capital and Growth.
11. Page 11
Value
Traditional supply chain leaders focus on cost management. There is no industry-standard definition
for value. To try to drive change, here we share the results on two value metrics: Market
Capitalization and Price to Tangible Book Value (PTBV). Overall, for the industry, the Price to
Tangible Book Values are low. Companies in the Household Products industry vary a great deal in
their valuations due to the variety of different products that this industry produces. Overall, the market
valuations of the segment improved as stock managers sought safer investments for clients.
Table 3. Overview of Market Capitalization and Price to Tangible Book Value for Household Products
Table 4. Overview of Market Capitalization and Price to Tangible Book Value for Beauty Companies
12. Page 12
Performance
While Growth for both industries plummeted, other metrics remained the same despite continued
investments in supply chain management. Looking at Table 5, you can see Operating Margin,
Inventory Turns, and Return on Invested Capital remained virtually unchanged. Cash-to-cash
decreased 2 days from pre-recession to post-recession. Much of this is due to advancements in
electronic cash transactions.
Table 5. Company Overview and Performance for Household Products Companies
As seen in Table 6, the trends are similar for the Beauty industry, except for Return on Invested
Capital, which spiked to 14 % and then back down to 6%. Cash-to-Cash increased 15 days from pre-
recession to post-recession. This could be due to retailers buying large orders of beauty products in
bulk to get a discount. Post-recession, retailers were searching for ways to increase margins on their
products and buying in bulk became a popular method to do so.
Table 6. Company Overview and Performance for Personal Products- Beauty Companies
13. Page 13
Note the differences in performance metrics for the two industries. The rhythms and cycles are
different. This is why they need to be studied within individual peer groups.
Cash-To-Cash Cycles
Cash-to-cash is a compound metric that combines Days of Receivables, Days of Inventory, and Days
of Payables. The formula is:
𝐶𝑎𝑠ℎ − 𝑡𝑜 − 𝐶𝑎𝑠ℎ = 𝐷𝑎𝑦𝑠 𝑜𝑓 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 + 𝐷𝑎𝑦𝑠 𝑜𝑓 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 − 𝐷𝑎𝑦𝑠 𝑜𝑓 𝑃𝑎𝑦𝑎𝑏𝑙𝑒𝑠
In Table 8 we share the impact of supply chain decisions on the components of cash-to-cash for
Household Products companies. Days of inventory declined slightly for Household Products while
increasing for Beauty Products Companies.
Table 8. Impact on Cash-to-Cash Elements Household-Nondurables Companies
As seen in Table 9, Days of Payables and Days of Inventory for the Beauty Products industry is
nearly 2X what they are for Household Products. As a result, Cash-to-Cash is significantly longer for
Beauty Products.
Table 9. Impact on Cash-to-Cash Elements Personal Products-Beauty
14. Page 14
Industry Focus
By studying industry financial reporting, we can track cause and effect on the Metrics That Matter. In
these excerpts from annual reports, note the focus on employee productivity, manufacturing reliability,
and standardization. Companies attempted to growth through M&A, but the efforts were largely
unsuccessful. They also tried to parlay investments in ERP-centric technologies into competitive
advantage. This also failed.
2014
The Procter & Gamble Company
In cost of goods sold, we are already achieving productivity improvements beyond our original savings
objectives. Better manufacturing reliability and adherence to quality standards are resulting in less raw material
usage and reduced finished product scrapping. Increasing localization of the supply chain is driving savings in
transportation and warehousing costs. Earlier this year, we initiated what is probably the biggest supply chain
redesign in the Company’s history, starting in North America. We’re moving from primarily single-category
production sites to fewer multi-category production plants. We’re simplifying, standardizing and upgrading
manufacturing platforms for faster innovation, qualification and expansion, and improved product quality. We’re
transforming our distribution network, starting with North America. We’re moving from shipping products to
retail operations leaders reporting to the CEO. Each of these changes reduces complexity, and creates clearer
accountability for performance and results. We’re just beginning to benefit from the productivity opportunities
that these organization changes create. We’ve reduced roles by 16% — more than 50% above the original
objective, and two years sooner than planned. This is strong progress, and we see more opportunity ahead.
We’re starting to improve marketing efficiency and effectiveness through an optimized media mix with more
digital, mobile, search and social presence, improved message clarity and greater savings in non-media
spending. We believe we have more opportunity to improve marketing efficiency — in both media and non-
media areas — while increasing overall marketing effectiveness and improving sales growth.1
L’Oréal S.A.
L’Oréal’s performance for its distributor customers is at the heart of the strategy devised by Operations to
optimise economic performance while adapting to changing distribution patterns. E-commerce and a host of
smaller sales outlets in the New Markets are now being added to traditional channels. Within this context,
the L’Oréal Supply Chain set a new record in terms of worldwide service level(1). These advances were
recognised in 2014, with L’Oréal climbing to 9th place in the Consumer Products category of the Gartner
international ranking(2), in recognition of the group’s continued progress in building an integrated
and innovative Supply Chain that creates added value for the markets.2
Revlon, Inc.
On October 9, 2013 (the ‘‘Acquisition Date’’), Products Corporation acquired The Colomer Group
Participations, S.L. (‘‘Colomer’’ and the ‘‘Colomer Acquisition’’), a Spanish company, for a cash purchase price
of $664.5 million. The Colomer Acquisition has provided the Company with broad brand, geographic and
channel diversification as well as distribution into new channels and cost synergies and comprises the entirety
of the Company’s Professional segment. In addition, the Colomer Acquisition has provided opportunities to
achieve additional growth by leveraging the combined Company’s enhanced innovation capability and know-
1
P&G 2014 Annual Report, August, 2014, p. 2, http://www.pginvestor.com, accessed January 2, 2018
2
Annual Report 2014, February, 2015, p. 2, http://www.loreal-finance.com, accessed January 2, 2018
15. Page 15
how and improve its anticipation of consumer trends in hair color and hair care, nail color and nail care, and
skin care as these trends typically appear first in salons. The Company accounted for the Colomer Acquisition
as a business combination in the fourth quarter of 2013 and Colomer’s results of operations have been
included in the Company’s Consolidated Financial Statements since the date of acquisition. The Company’s
integration initiatives in connection with the Colomer Acquisition have included actions to integrate Colomer’s
operations into the Company’s business, as well as additional restructuring actions to reduce costs across the
Company’s businesses (all such actions, together the ‘‘Integration Program’’). The Integration Program is
designed to deliver cost reductions throughout the combined organization by generating synergies and
operating efficiencies within the Company’s global supply chain, consolidating offices and back office support,
as well as actions designed to reduce selling, general and administrative expenses. Certain actions that are
part of the Integration Program are subject to consultations with employees, works councils or unions and
governmental authorities. The Company plans to substantially complete the Integration Program by the end of
2015.3
2015
The Procter & Gamble Company
Fiscal 2015 was a tough year due to weakening developing market economics and the unprecedented
negative impact of foreign exchange. Because we are a dollar-denominated company headquartered in the
U.S., and given the reality of the geographic footprint of our business— with significant exposures in markets
such as Brazil, Japan and Russia—Company worldwide sales and profits were negatively impacted by foreign
exchange. All-in sales were down 5%, including the negative 6-point impact of foreign exchange. Organic sales
grew 1%. Organic sales for our 10 core categories grew 2%, about one point below underlying market growth.
On an all-in GAAP basis, earnings per share were $2.44, down due to significant one-time charges and
restructuring costs. Core earnings per share were $4.02, down 2%, including a 13-point, $1.5 billion negative
impact of foreign exchange. On a constant currency basis, core earnings per share were up 11%.4
Our ability to meet our customers’ needs and achieve cost targets depends on our ability to maintain key
manufacturing and supply arrangements, including execution of our previously-announced supply chain
simplifications and certain sole supplier or sole manufacturing plant arrangements. The loss or disruption of
such manufacturing and supply arrangements, including for issues such as labor disputes, loss or impairment
of key manufacturing sites, inability to procure sufficient raw or input materials, natural disasters, acts of war or
terrorism or other external factors over which we have no control, could interrupt product supply and, if not
effectively managed and remedied, have an adverse impact on our business, financial condition or results of
operations.5
L’Oréal S.A.
2015 was a very good year for L’Oréal Operations(1), which delivered higher performance levels in all fields of
responsibility. The ongoing modernisation in 2015 of our supply chain(2), for example, perfectly illustrates our
imperatives of agility, competitiveness and reliability in all distribution channels, especially in deep trade(3) and
e-commerce, which are two of our key challenges. The whole of our chain of expertise, from “design& develop”
to distribution, by way of sourcing and manufacturing, is directed transversally towards a single decisive
challenge: to satisfy increasingly demanding consumers and distributor customers, eager for more
personalisation, more digital initiatives and more responsiveness. Our mission: to enable all the group’s brands
3
Revlon 2014 Annual Report, March, 2015, p. 1, http://www.annualreports.com/Company/revlon-inc, accessed January 2, 2018
4
2015 Annual Report, August, 2015, p. 1, http://www.pginvestor.com, accessed January 2, 2018
5
2015 Annual Report, August, 2015, p. 1, http://www.pginvestor.com, accessed January 2, 2018
16. Page 16
to provide consumers, wherever they are worldwide, with the most advanced cosmetics solutions for a
maximum perceived value. Operations play a key role in integrating and rolling out acquisitions within the
L’Oréal group. The internationalisation of URBAN DECAY is an excellent example. To support the worldwide
development of this American brand, the supply chain teams shared skills and information systems, particularly
in the forecast field. Another important key to success: using L’Oréal’s networks – physical distribution
networks, hubs and transport – to supply all the points of sale of URBAN DECAY, which have stepped up
dramatically over the last three years.6
Revlon, Inc.
The operation of the Company’s business depends on the Company’s information technology systems. The
Company relies on its information technology systems to effectively manage, among other things, the
Company’s business data, communications, supply chain, inventory management, customer order entry and
order fulfillment, processing transactions, summarizing and reporting results of operations, human resources
benefits and payroll management, compliance with regulatory, legal and tax requirements and other processes
and data necessary to manage the Company’s business. The failure of the Company’s information technology
systems, including any failure of the Company’s current systems and/or as a result of transitioning to additional
or replacement information technology systems, as the case may be, to perform as the Company anticipates
could disrupt the Company’s business and could result in, among other things, transaction errors, processing
inefficiencies, loss of data and the loss of sales and customers, which could have a material adverse effect on
the Company’s business, financial condition and/or results of operations. In addition, the Company’s
information technology systems may be vulnerable to damage or interruption from circumstances beyond the
Company’s control, including, without limitation, fire, natural disasters, power outages, systems failure, system
conversions, security breaches, cyber-attacks, viruses and/or human error. In any such event, the Company
could be required to make a significant investment to fix or replace its information technology systems, and the
Company could experience interruptions in its ability to service its customers. Any such damage or interruption
could have a material adverse effect on the Company’s business, financial condition and/or results of
operations.7
2016
The Procter & Gamble Company
One way we’re increasing efficiency in our U.S. supply chain is through our six new mixing centers. They are
strategically located closer to customers in key population centers, putting 80% of our U.S. business within one
day of the store shelf and the shopper. Shipping multiple categories per load allows more efficient use of every
truck and more frequent customer deliveries. This is driving lower inventory, improving service to retailers, and
increasing product availability for shoppers—delivering the right mix and the right amount, right on time.8
Our costs are subject to fluctuations, particularly due to changes in commodity prices and our own productivity
efforts. We have significant exposures to certain commodities, in particular certain oil-derived materials like
resins, and volatility in the market price of these commodity input materials has a direct impact on our costs. If
we are unable to manage commodity fluctuations through pricing actions, cost savings projects and sourcing
decisions as well as through consistent productivity improvements, it may adversely impact our gross margin,
operating margin and net earnings. Sales could also be adversely impacted following pricing actions if there is
6
Annual Report 2015, February, 2016, p. 49, http://www.loreal-finance.com, accessed January 2, 2018
7
Revlon 2015 Annual Report, March, 2016, p. 23, http://www.annualreports.com/Company/revlon-inc, accessed January 2, 2018
8
P&G 2014 Annual Report, August, 2016, p. V, http://www.pginvestor.com, accessed January 2, 2018
17. Page 17
a negative impact on consumption of our products. We strive to implement, achieve and sustain cost
improvement plans, including outsourcing projects, supply chain optimization and general overhead and
workforce optimization. As discussed later in the MD&A, we initiated certain non-manufacturing overhead
reduction projects along with manufacturing and other supply chain cost improvements projects in 2012. If we
are not successful in executing these changes, there could be a negative impact on our operating margin and
net earnings.9
L’Oréal S.A.
L’Oréal’s Operations(1) draw on a wealth of diverse professional skills and expertise to serve the end
consumers of all the group’s brands in every country. With one fundamental responsibility: to guarantee the
quality and safety of the group’s products to consumers worldwide while protecting the environment. To
enhance agility and effi ciency, we are continuing to integrate all the opportunities opened up by digitalisation.
A number of advances highlight this transformation throughout our chain of expertise: • our design centres use
rapid 3D printer prototyping techniques to optimise time-to-market for new products; • in production, our
industrial platform delivers precise responses for all needs, from large to “tailor-made” series, with
ultraconnected plants equipped with cobots(2) that are bringing us on the path to Industry 4.0. Finally, our
supply chain(3) is becoming even more responsive to take up the key challenge of e-commerce. Another major
success in 2016 was our shared commitment and contribution to the “Sharing Beauty With All” programme.
L’Oréal has been recognised as a leader by the CDP(4) for its initiatives on three fronts: combating climate
change, managing water in a sustainable way and protecting forests.
To make sure consumers get the best service wherever and whenever they need it, L’Oréal’s supply chain(3)
is evolving as fast as digital technology itself. The challenge is to ensure total consumer satisfaction, both in
stores and online, by taking on new challenges: the ramp-up of e-commerce, the personalisation of products,
and the management of products data and different delivery modes. All the while with the same guarantee
of quality, swiftness and safety.10
Revlon, Inc.
The Company produces a substantial portion of its products at its Oxford, North Carolina facility. Significant
unscheduled downtime at this facility, or at other Company facilities and/or third party facilities at which the
Company’s products are manufactured, whether due to equipment breakdowns, power failures, natural
disasters, weather conditions hampering delivery schedules, intermittent technology disruptions or other
disruptions, including those caused by transitioning manufacturing across these facilities, or any other cause
could have a material adverse effect on the Company’s ability to provide products to its customers, which could
have a material adverse effect on the Company’s sales, business, prospects, results of operations, financial
condition and/or cash flows. Additionally, if product sales exceed the Company’s forecasts, internal or third
party production capacities and/or the Company’s ability to procure sufficient levels of finished goods, raw
materials and/or components from third party suppliers, the Company could, from time to time, not have an
adequate supply of products to meet customer demands, which could have a material adverse effect on the
Company’s business, prospects, results of operations, financial condition and/or cash flows. Prior to the
Elizabeth Arden Acquisition, Elizabeth Arden did not own or operate any manufacturing facilities and relied on
third-party manufacturers and component suppliers to source and manufacture substantially all of its 19 owned
and licensed products and while certain consolidation will result from the Company’s integration activities, we
will continue to use third party manufacturers for the Elizabeth Arden segment in the future. Over the past
several years, Elizabeth Arden consolidated the third-party manufacturers and component and materials
9
P&G 2014 Annual Report, August, 2016, p. 20, http://www.pginvestor.com, accessed January 2, 2018
10
Annual Report 2016, February, 2017, p. 46, http://www.loreal-finance.com, accessed January 2, 2018
18. Page 18
suppliers that it uses. Elizabeth Arden also implemented a ‘‘turnkey’’ manufacturing process for substantially all
of its products, as a result of which it relies on its third-party manufacturers for certain supply chain functions
that it previously handled, such as component and raw materials planning, purchasing and warehousing. The
Company’s business, prospects, results of operations, financial condition and/or cash flows could be materially
adversely affected if Elizabeth Arden experiences any supply chain disruptions caused by this ‘‘turnkey’’
manufacturing process or other supply chain projects, or if its manufacturers or raw material suppliers were to
experience problems with product quality, credit or liquidity issues, or disruptions or delays in the
manufacturing process or delivery of finished products or the raw materials or components used to make such
products.11
11
Revlon 2016Annual Report, March, 2017, p. 19, http://www.annualreports.com/Company/revlon-inc, accessed January 2, 2018
19. Page 19
Recommendations
In evaluating supply chain performance, it is important to look at trends within a peer group over time.
Here we looked critically at the Household Products and Beauty Products industries for the period of
2010-2016. A focus on manufacturing, functional process improvement, and ERP-centric
technologies drove the industries.
As shown in the orbit chart reviews, few companies delivered on a balanced scorecard. As a result,
the industries are stuck, and even going backward. Growth is going backwards, while the industries
are maintaining status quo on the other Metrics That Matter. As companies study supply chain
excellence and corporate performance, we recommend six actions:
4) Build a Guiding Coalition to Drive Improvement Based on Industry-Specific Data.
Organizations should benchmark companies within an industry. Each industry has unique rhythms
and cycles. As a result, supply chain excellence analysis needs to be within an industry.
5) Understand Supply Chain Potential and Orchestrate Trade-offs on the Effective Frontier. The
supply chain is a complex system, with interrelated metrics, and nonlinear relationships. Supply
chain leadership teams should analyze the total portfolio of metrics and study progress at the
intersections of the Effective Frontier as shown in Figure 7. Growth has the highest correlation to
market capitalization. Companies with higher performance are using more advanced analytics to
plan outcomes and design the supply chain.
Figure 7. The Supply Chain Effective Frontier
6) Apply Systems Theory. Teams should evaluate performance over time to understand
improvement while realizing they are managing a complex system. The functions should be aligned
to a balanced portfolio of metrics representing the Effective Frontier, while functional metrics should
20. Page 20
be focused on improving reliability (e.g., first-pass yield, hands-free orders, and supplier quality,
etc.).
7) Focus on Building Value Networks. While many of these companies could be a powerbroker in
the industry to redefine outside-in processes, all companies are accepting the limitations of the
inside-out supply chain. They operate functional silos with a traditional supply paradigm. The
traditional focus of Lean is not sufficient. This is an opportunity for the industry.
8) Learn from Other Industries. Use a Steady Hand/Focused Leadership to Drive Improvement.
To make the necessary improvements, companies today must move past an “ERP-centric view”
and build outside-in processes with a focus on value-based outcomes. Network design, supply
chain planning, and revenue management are opportunities for process excellence. The Household
Products manufacturers should turn to the high-tech industry to benchmark and drive innovation.
Conclusion
The story of the Household Products and Beauty Products industries is of shifts in consumer demand
with industries that failed to respond. As growth levels fell, supply chain leaders focused on reducing
costs and improving inventories in the face of complexity. They did not right-size complexity or focus
on the redesign of supply chain processes to embrace complexity. The fact that most of the metrics
maintained consistency in the face of falling volumes is a testament to their hard work.
21. Page 21
Appendix
The Supply Chain Index is a measurement of supply chain improvement. Companies outperforming
their peer groups will drive improvement at a slower rate than a lower-performing company. As a
result, we find that supply chain leaders are usually above their peer group in performance, in the
upper 2/3 of the Supply Chain Index. Companies with low Supply Chain Index scores are usually
driving improvement but are new on the journey. As a result, the rate of change in Supply Chain
Improvement is quicker than that of a more mature company.
As shown in Table A, Tupperware Brands Corporation, Church & Dwight Company, Inc., and Unilever
are driving improvement at a faster rate than the peer group.
Table A. Performance Factor Analysis on the Supply Chain Index for Household Products Companies
In Table B, we show the calculations for the factors for the Supply Chain Index for Beauty companies.
Overall, companies with smaller market caps are driving improvement at a faster rate.
Table B. Performance Factor Analysis on the Supply Chain Index for Beauty Products Companies
22. Page 22
Other Reports in This Series
Supply Chain Metrics That Matter, A Focus on Food Manufacturing
Published June 2016
Supply Chain Metrics That Matter a Focus on Food and Beverage Manufacturing
Published June 2015
Supply Chain Metrics That Matter a Focus on Consumer Manufacturing
Published by Supply Chain Insights in June 2015
Supply Chains to Admire 2017
Published by Supply Chain Insights in June 2017
These reports and additional information on the Supply Chain Metrics That Matter methodology are
available at our Supply Chain Insights website.
23. Page 23
About Supply Chain Insights LLC
Founded in February 2012 by Lora Cecere, Supply Chain Insights LLC is in its sixth year of operation.
The Company’s mission is to deliver independent, actionable, and objective advice for supply
chain leaders. If you need to know which practices and technologies make the biggest difference to
corporate performance, we want you to turn to us. We are a company dedicated to this research. Our
goal is to help leaders understand supply chain trends, evolving technologies, and which metrics
matter.
About Lora Cecere
Lora Cecere (twitter ID @lcecere) is the Founder of Supply Chain Insights LLC and
the author of popular enterprise software blog Supply Chain Shaman currently read
by 15,000 supply chain professionals. She also writes as a Linkedin Influencer and
is a contributor to Forbes. She has written five books. The first book, Bricks Matter,
(co-authored with Charlie Chase) published in 2012. The second book, The
Shaman’s Journal 2014, published in September 2014; the third book, Supply
Chain Metrics That Matter, published in December 2014; the fourth book, The
Shaman’s Journal 2015, published in August 2015, the fifth book, The Shaman’s Journal 2016,
published in June 2016 and the sixth book, The Shaman’s Journal 2017, published in July 2017.
With over 14 years as a research analyst with AMR Research, Altimeter Group, and Gartner
Group and now as the Founder of Supply Chain Insights, Lora understands supply chain. She has
worked with over 600 companies on their supply chain strategy and is a frequent speaker on the
evolution of supply chain processes and technologies. Her research is designed for the early adopter
seeking first mover advantage.
About Sam Borthwick
As a Research Associate, Samuel Borthwick analyzes balance sheet and income
statement data for the Supply Chains to Admire Report along with the monthly
Metrics That Matter series. A recent graduate of Purdue University, majoring in
Supply Chain Management, Sam loves data. He lives in Indianapolis, Indiana
where he enjoys playing tennis and spending time with his family.