Beautifying Inventory and Service Beautifying Inventory and Service Beautifying Inventory and Service Beautifying Inventory and Service

Levels at a Cosmetics CompanyLevels at a Cosmetics CompanyLevels at a Cosmetics CompanyLevels at a Cosmetics Company

James Fusco, CPIM

Background of Experience

• Unique position to learn APICS theories due to

my fresh start in the business

• Chance to experience a fresh ERP system

install and integration

• Maintained the item master and learned the

connections made with BOMs, work orders, and

purchase orders

The Cosmetics Industry

• Competitive and fast-paced environment-“newness” rules

• Our customers were used to 100% service level- almost a make to order environment, but just used make to stock methods

The 4 Main Issueswe faced in the

Operations Department:

Issue #1:Lack of ERP System

• Previous component buyer placed blanket orders for mass quantities of shared componentry

• Previous methods of forecasting only looked at past weighted sales averages

• All planning and buying was done on proprietary spreadsheets

Issue #2:Marketing changes

• Marketing-driven packaging change to the entire product line, including primaries and secondaries

• Expansion of component variety (new sizes, colors, materials)

Issue #3:SKU Proliferation

• The company doubled in size in less than five years- the growth outpaced component lead times, leading to constant expediting

• The product line was rapidly expanding (five times the SKUs when factoring-in new “off-sizes” for kits, etc.)

0

100

200

300

400

500

600

700

800

900

19

98

-10

-01

19

99

-04

-01

19

99

-10

-01

20

00

-04

-01

20

00

-10

-01

20

01

-04

-01

20

01

-10

-01

20

02

-04

-01

20

02

-10

-01

20

03

-04

-01

20

03

-10

-01

20

04

-04

-01

20

04

-10

-01

20

05

-04

-01

20

05

-10

-01

20

06

-04

-01

20

06

-10

-01

20

07

-04

-01

20

07

-10

-01

20

08

-04

-01

20

08

-10

-01

20

09

-04

-01

20

09

-10

-01

20

10

-04

-01

20

10

-10

-01

20

11

-04

-01

20

11

-10

-01

20

12

-04

-01

20

12

-10

-01

20

13

-04

-01

20

13

-10

-01

20

14

-04

-01

20

14

-10

-01

Total SKUs Over Time

Total SKUs

0

500

1000

1500

2000

2500

3000

20

09

-10

-01

20

09

-12

-01

20

10

-02

-01

20

10

-04

-01

20

10

-06

-01

20

10

-08

-01

20

10

-10

-01

20

10

-12

-01

20

11

-02

-01

20

11

-04

-01

20

11

-06

-01

20

11

-08

-01

20

11

-10

-01

20

11

-12

-01

20

12

-02

-01

20

12

-04

-01

20

12

-06

-01

20

12

-08

-01

20

12

-10

-01

20

12

-12

-01

20

13

-02

-01

20

13

-04

-01

20

13

-06

-01

20

13

-08

-01

20

13

-10

-01

20

13

-12

-01

20

14

-02

-01

20

14

-04

-01

20

14

-06

-01

20

14

-08

-01

20

14

-10

-01

20

14

-12

-01

20

15

-02

-01

Component SKUs Proliferation Over Time

Total SKUs

Issue #4:High Costs

• No benchmark testing for component suppliers, which resulted in higher costs than necessary

• We had two warehouses on the east coast- one northern and one southern.

The Solutions…

(Still a work in progress…)

Formal Forecasting

• Formal forecasting began with a look to the future based on budgets.

– How can you hit your budget if your forecast

doesn’t support product equaling that dollar

amount?

Established a formal S&OP Meeting

• Heads of each channel/department attended

to make sure the plan matched the budget

• Noted individual SKUs that were selling either

much higher or lower than the forecast

• Allowed us to know of future product

discontinuations so we wouldn’t over-order

components

Production Planning Meetings

• Monthly meetings where the forecast was viewed against on-hand finished goods inventory.

• Based on the weeks on hand, we would plot a new production run accordingly.

• Went from holding 13 weeks of safety stock down to 8 weeks without sacrificing service level.

ERP System Integration - 1

• Brought the whole company “online”

• Reduction in the time to process an order from start to finish

• Vendors and co-packers also brought “online”

ERP System Integration - 2

• Item master and BOMs used with production work orders allowed for data manipulation that would aggregate all component demand without having to do it manually

• Gave visibility to all members of the operations team

New strategies for procuring componentry:

“Make & Hold”

• Make and hold agreements with vendors for shared components that we could purchase in large quantities and reduce lead time

• Gave us economy of scale

• There were some issues, though…

Utilising Outsourcing

• Moved most of our component production to China

• Because of the new make and hold policies, we finally had the volume necessary to justify a production run in China

ERP System used to provide metrics

• Data from the ERP system could be manually manipulated after reports were run to make sure we weren’t too over or under-stocked on components

• I created my own “mini-MRP”

• Run rates for components were established and updated frequently

Vendor Relations enhancements

• New reporting tools from ERP system

allowed future planning with vendors

• Established an “Open Order Report” that

vendors could update- it showed the quantity

on order and expected due date for each item

• Run rates were shared in informal

conversations with vendors

Component standardisation

• Used the same neck size for various bottles, reducing the need for multiple customised pumps

• Different glass color requirements lead us to create a “clear” mold that we could paint any custom color after the bottle was made

Other Cost-Savings

• Benchmarking

• Vendor reduction

• Made suggestions to use-up excess inventory

• Went to only one warehouse

Our Progress…

55,00%

60,00%

65,00%

70,00%

75,00%

80,00%

85,00%

90,00%

95,00%

100,00%

Order Fill Rate

Order Fill Rate

Linear (Order Fill Rate)

94,00%

95,00%

96,00%

97,00%

98,00%

99,00%

100,00%

101,00%

Line Item Fill Rate

Line Item Fill Rate

Linear (Line Item Fill Rate)

88,00%

90,00%

92,00%

94,00%

96,00%

98,00%

100,00%

102,00%

Unit Fill Rate

Unit Fill Rate

Linear (Unit Fill Rate)

SKU Proliferation Review

• Number of finished goods SKUs increased by 67% over the past 3 years

• Number of component SKUs increase by 61% over the past 3 years

$5 000 000,00

$5 500 000,00

$6 000 000,00

$6 500 000,00

$7 000 000,00

$7 500 000,00

$8 000 000,00

$8 500 000,00

$9 000 000,00

FG Value

FG Value

Linear (FG Value)

$-

$500 000,00

$1 000 000,00

$1 500 000,00

$2 000 000,00

$2 500 000,00

$3 000 000,00

$3 500 000,00

$4 000 000,00

$4 500 000,00

$5 000 000,00

Comp Value

Comp Value

Linear (Comp Value)

Questions?