L’Oréal Supply Chain
Diagnostic
March 18, 2004
Presentation Agenda
I. Project Scope and Activities
II. Overview of Our Supply Chain Findings
I. Processes
II. Inventory Review
III. Maturity Profiles
IV. Organization/ People and Culture
V. Technology
III. Supply Chain Roadmap
IV. Discussion of Next Steps
2
Our Project Approach
Over the past three weeks, we have:
Interviewed 5 Executives of L’Oréal Canada
Facilitated two cross-functional process workshops
Collected and analyzed data
Conducted a high level maturity assessment
Compared L’Oréal process and performance to CPG best practice
Identified key business issues and areas of improvement
Summarized our findings in this presentation document
Project Kickoff
Data Collection
Interview with
Executives
Process
Workshops
Model Review &
Validate Base
Case
Review Metrics
Identify &
Consolidate
Issues &
Opportunities
Opportunity
Prioritization
Benefits
Assessment
Findings/
Recommendation
Development
Present
Recommendations
Discuss
Next Steps
3
Cross-Functional Participants
Senior Management - Supply ChainSenior Management - Supply Chain
L a u r e n t V e n o t ( P r o j e c t S p o n s o r )
J e a n V a l o i s
P i e r r e M a s s i c o t t e
V a l é r y M a y e r
SalesSales
Dominique De Celles
Isabelle Genest
Anne-Marie Nelson
Dion Gemmity
Customer ServiceCustomer Service
Eli Bengio
Patricia Raposo
Logistics & ProcurementLogistics & Procurement
Valérie Lacerte
Yves Dubé
Naity Jacel
Information technologyInformation technology
Pierre Journel
Marcelyne Craft
Finance Finance
Martin Deschênes
4
Presentation Agenda
I. Project Scope and Activities
II. Overview of Our Supply Chain Findings
I. Processes
II. Inventory Review
III. Maturity Profiles
IV. Organization/ People and Culture
V. Technology
III. Supply Chain Roadmap
IV. Discussion of Next Steps
5
Processes
Demand PlanningDemand Planning Supply PlanningSupply Planning Order FulfillmentOrder Fulfillment
• Develop Sales Forecast
• Maintain Promotional Plan
• Consider inventory levels,
backorder reports, safety
stock levels
• Consolidate and consider
external data (POS,
Nielsen, Customer data)
• Reconcile Demand Plan
with Budget
• New Product Introductions
• Net Inventory and Lead
Times from the Forecast
• Distributed Requirement
Planning
• Capacity Requirement
Planning
• Customer Allocations
• Communicate forecast to
Suppliers
• Receive supplier
commitment
• Process Customer Orders
• Plan and Manage Finished
Goods Inventory
• Picking and Packing
• Manage Outbound Product
Flow
• Manage shipping &
transportation
• Generate Invoice
• Credit management and
A/R
(*) Out of scope
6
Demand Planning – Issues and Opportunities
Issues
Manual and Inconsistent Processes
The forecast process is mostly manual, inconsistent
across brands and divisions (due to different levels of
maturity) as well as both time and resource consuming
There is no formal process for determining which products
should be focused on during the forecasting meetings
No one department “owns the forecast”
There is no mechanism for automatically generating a
baseline forecast
Too much time is spent on manual processes, data clean-
up and generating reports, leaving insufficient time to
analyze data and manage exceptions
L’Oréal Canada’s brand forecasts are not all aggregated
up into one forecast limiting visibility and data sharing
L’Oréal Canada does not have simulation or “what if”
capabilities
Many disparate tools are being used to facilitate
forecasting - Excel, Valo, SAP and Outils Gestion.
Interfaces have been built between the various tools and
systems, but manual verification is required and the
current technology still does not meet L’Oréal ’s
requirements
POS, Nielsen, customer information, promotional and
advertising information are not all integrated in one central
repository
Opportunity
Process Redesign
Spend time forecasting products that give the highest return. Not
all product lines benefit from increased attention. Focus on high
margin, low volume, big ticket items, high profile items and items
with complements to maximize profitability
Communicate and reconcile forecast assumptions by conducting a
formal review after each planning cycle with all stakeholders.
Report forecast error and modify assumptions as appropriate
Forecasting Tool/BW
Implementing a Forecasting tool will enable the automatic
generation of a baseline forecast based on sales history and
additional variables. Most packages allow users to select a
statistical model, enable the system to determine the model with
the greatest fit or employ a composite model
The forecasting tool selected should allow for the generation of
alerts based on predefined tolerances, highlighting the products
that require further consideration and manual intervention
Products should be reviewed to determine which ones are critical
or high margin to plan in a Forecasting tool, while non-critical or
stagnant products may be planned in SAP R/3
The forecasting tool selected should provide “What If” simulation
capabilities to demonstrate the impact of a variable change (.
price change)
Coordinate data collection for all available sources and house it in
a central repository such as SAP Business Warehouse
7
Demand Planning – Issues and Opportunities
Issues Opportunity
People
Ensure the Planning Team is Cross-Functional and Cross-
Trained:
L’Oréal will need to evaluate their resources skills and
determine if additional resources are required to gain
forecasting expertise
Statistical proficiency and system expertise should be
balanced with industry, company and product knowledge
Cross-training sharpens skills, broadens perspectives and
improves communication
Create incentives to improve the accuracy of forecasts:
Establish forecast accuracy goals
Establish compensation structure
Monitor and review congruence of goals to rewards
This will remove trade-offs between forecast accuracy and
performance against forecast, leverages key information and
helps eliminate biases
L’Oréal Canada has started to tie compensation to forecast
accuracy. This practice will obtain greater acceptance among
employees once a tool to support the process has been
implemented
Departments Involved have Different Priorities
While the generation of the forecast is a collaborative effort
between Sales, Marketing, Finance and Logistics, the
involved parties do not share the same view of the
forecast’s importance nor appreciate the impact of their
input (or lack thereof) on other departments’ ability to
execute their functions downstream
Sales is seen as too distant from the customer and
therefore lacking pertinent data to input into the forecasting
. which store carries which SKU
Sales’ strategy to push products at the end of the month
and year by decreasing prices, throws off the forecast
L’Oréal Canada realizes that even if they implement a
forecasting tool, without the proper processes or resources
in place, forecast accuracy will not likely improve
L’Oréal Canada experiences a high turnover among sales
and marketing people resulting in the loss of vital customer
and product information
Training for Sales and Marketing resources is insufficient.
Compensation re-evaluation has begun to align individual
goals and metrics with organizational goals with respect to
forecast accuracy
Although L’Oréal Canada has made great strides in
improving their forecasting process, the accuracy has not
improved significantly leading to feelings of frustration
among employees
8
Demand Planning – Issues and Opportunities
Issues Opportunity
Product Launches
Although L’Oréal Canada has access to other countries
launches as well as to like products’ sales history, there is
no tool or process in place to effectively incorporate this
data into their forecasts
L’Oréal Canada is unable to accurately assess the
cannibalization effect of one product on another
No post-mortem analysis is conducted or captured on failed
product launches as input to future launches
Promotions
There is currently no means to accurately cleanse
promotional uplifts from sales history
Past promotional performance is not adequately measured,
therefore making it difficult to predict the impact of future
promotions
Promotions involving giftware can lead to imbalances in
demand, making it difficult to predict true demand for these
products
“One Shot” promotions are difficult to plan
Product Allocation
Product allocation has not been deployed effectively and
has even led to undesirable forecasting behaviours
Product Lifecycle Management
Investigate APS functionality to handle:
“Like Modeling” whereby sales history of a similar product
is used to forecast a new product
Phase In/ Phase Out of products which entails weighting
the forecast to reflect a product’s lifecycle
The separation of the promotional uplift from baseline
forecast generation
Cannibalization
Data Cleansing
Sufficient time must be spent cleaning data such as SKU
changes, data errors, duplication, one-time events, stock-outs,
promotions, outliers etc… to enable forecasting models to
separate business growth from seasonality and other deviations
Product Allocation
Allocation is a useful tool for ensure higher priority customers
obtain increased service levels in cases of shortages. L’Oréal
should develop and implement formal policies for allocating
products (. based on customer forecasts)
Allocation configuration should be modified to reflect the new
policies in SAP R/3. In the long-term additional allocation
functionality could be explored in an APS tool
9
Demand Planning – Issues and Opportunities
Issues Opportunity
Customer Collaboration
Cross-Share Forecasts with Key Customers
Incorporate customer forecasts which are deemed as reliable
into baseline forecasts and challenge their numbers (manage
by exception)
Once forecasts are more accurate, L’Oréal should provide a
website to allow easy access for their Customers to enter their
forecasts and to post L’Oréal’s confirmed quantities for
customers to validate in a timely manner
Aggregation / Disaggregation
Determine the appropriate level to forecast . SKU/customer
location for DSD, SKU/Customer DC for warehouse shipments…
An APS solution will facilitate the aggregation and disaggregation
of the forecast, however, time should be spent determining the
appropriate level for forecasting. Top-down approaches can mask
trend shifts while bottom-up approaches may not consider effects
shared across brands
Measuring Forecast Inaccuracy
Order date should be used as the point for establishing demand
since it gives the most accurate information on when demand is
initiated. Otherwise stock-outs, lost sales, opportunity costs and
lost customers may be masked
Ensure the full aggregated costs of forecast error are measured:
Insufficient inventory (stock outs)
Excess inventory (returns, spoiled, destroyed, obsolete, slow
moving)
Safety stock
Expediting costs
Inventory carrying costs
Overtime
Customer Collaboration
Although some of L’Oréal Canada’s customers provide
forecast and POS data, L’Oréal does not possess the
infrastructure or processes to effectively use the data
L’Oréal Canada must first focus on improving it’s own
processes before extending their processes and data out to
share with Customers and Suppliers
Forecast Accuracy
While forecast accuracy is better at the Brand level, it
varies greatly at the SKU level regardless of product
classification (A, B, C)
Only 40% to 50% of items achieve the target of ±
tolerance of 20% (BIC 75% of SKU achieve this
target)
SKU ranking has been erroneous
Impacts of Forecast Inaccuracy
Numerous forecast modification requests to the factories
Customer Service levels (line fill rate in $) are at 92%
despite target s of % (BIC is 99%)
Inventory Write-offs are at % (BIC for CPG is 2%)
Inventory Turns are 4 (BIC for CPG is 17)
Sales Returns are at % (BIC is %)
NOTE: We are comparing L’Oréal to CPG companies
which is not a fair comparison in some cases. The
comparison is meant as a guideline.
10
Supply Planning – Issues and Opportunities
Issues
Input
The unconstrained forecast is the main input for developing
the purchasing plan. Given L’Oréal Canada’s poor forecast
accuracy, the purchasing plan does not effectively meet
customer’s demands as demonstrated by the numerous
forecast modification orders sent to the plants and high
inventory levels
Products lead times, safety stock levels, min/max levels are
not reviewed on a regular basis
Factory Constraints
The purchasing frozen horizons set by the plants seem
excessively long and are not reviewed sufficiently. Therefore,
L’Oréal Canada must place orders far in advance, often
before they are able to assess trends
The plants confirm back all ordered quantities since
replenishment lead time is used. As a result, L’Oréal does not
obtain a real view of supply or capacity constraints
The factories are Product focused rather than Sales/Customer
focused. The result is a Push model rather than Pull. L’Oréal’s
factories occasionally push excess stock to the DCs rather
than trying to match customers’ requirements
No global supply planning is engaged in at L’Oréal. Each
L’Oréal Sales Company is prescribed where to buy each
product and can only look to other factories in cases of
shortage / capacity constraints
Opportunity
Factory Constraints
Collaborative Planning with the plants would involve L’Oréal
Canada posting their forecast on the Web and allowing the
factories to confirm the quantities they can supply against the
forecast in a timely manner
Continue to roll-out one of the newer L’Oréal Canada processes
whereby products are stocked in the US and shipped directly to
customers in Canada to reduce inventory levels and costs
Long Term
Once L’Oréal Canada has improved their forecast accuracy, they
will be in a better position to approach the factories to discuss:
Shortening frozen horizons
Communicating issues
Obtaining visibility to the plant’s production schedules to gain
a better sense of supply plans and capacity constraints
Receiving ASNs to give L’Oréal Canada a true sense of their
ATP to pass on to their customers
Develop new policies and education program across L’Oréal
companies to ensure customer service levels are the primary
focus rather than factory throughput and costs
All L’Oréal company forecasts should be rolled up to a central
supply chain group for global supply planning purposes. This
would enable global fulfillment to match supply with demand
11
Supply Planning – Issues and Opportunities
Issues Opportunity
Allocation
The US Factories ought to be allocating stock in ratio to L’Oréal
Sales Companies’ forecasts. This would:
Encourage the L’Oréal Sales Companies to improve their
forecast accuracy
Ensure fair share allocation in shortage situations since
each Sales Company would obtain stock in proportion to
their forecast
Beyond the forecasted amount stock could be allocated on a
“first come, first serve” basis
The US Factories should measure and be compensated based
on their ability to service all of North America and not just the US
VMI
Implement an APS tool that includes VMI functionality and choose
a pilot customer to model with before extending the functionality
out to other customers
Leverage the VMI experience of L’Oréal USA (. Lancôme)
Product Harmonization
• Where possible, continue to roll out the process of manufacturing
with Final Assembly, whereby products are produced and finished
to the point of localization steps
Factory Constraints (cont’d)
Canada makes up only 3% of L’Oréal’s global sales,
while the US which supplies Canada makes up 28% of
L’Oréal’s global sales. Therefore, L’Oréal Canada’s
requirements are only fulfilled once the US’s needs have
been satisfied. There is no formal process to allocate
stock between Canada and the US
The US factory is measured based on it’s ability to meet
the US requirements instead of North America’s. This
KPI further encourages the US factory to disregard
Canada’s orders
VMI
A few key customers have expressed a willingness to
establish a VMI relationship, but L’Oréal Canada does
not yet have the process and infrastructure to fulfill this
request
Product Launches
The rush to bring new products into the market is
causing launch dates to be pushed up with an insufficient
buffer. The result is that the supply does not arrive in
time to meet the advertising timelines L’Oréal and its
customers have already committed to
Product Harmonization
Many products cannot be harmonized due to local legal
requirements including language and DIN #s
12
Order Fulfillment – Issues and Opportunities
Issues
Customer Segmentation and Service Levels
L’Oréal customers have been segmented and task forces
have been created to work with customers, yet L’Oréal is
still struggling to achieve higher service levels
L’Oréal is “not close enough to it’s customers”, the
“arrogant culture” prevents L’Oréal from listening
sufficiently to Customers’ requirements
Product allocation is not being effectively used to ensure
priority customers are satisfied first in cases of product
shortage
Available To Promise (ATP)
ATP accuracy is compromised due to factories vague
confirmations (they only agree to supply product within a
months time frame). As a result, customer service reps are
unable to share ATP information with customers
L’Oréal no longer widely accepts backorders
Order Desk
• Customers must call L’Oréal multiple times since
separate orders are placed by brand. Some of the orders
are consolidated using the transportation management
system to ship to the customer
Opportunity
Customer Service
Analyze customer profiles and subsequently customize service
effort tied to profitability, customer loyalty and purchase history
Implement consistent communication with customers . order
acknowledgements, order status updates and customer
satisfaction surveys
Work with L’Oréal factories to obtain more specific ATP dates (.
ASNs) to share with customers
Determine whether the current order entry process is suitable to
meet customer needs or whether a more efficient process is
required.
Do most customers have separate buyers / receiving docks
by brand or would they prefer a more consolidated view of
L’Oréal?
Technology
Once the order entry process has been reviewed, there may be a
need to modify Sales Area configuration in SAP SD
Formalize product allocation business rules to ensure top
customers receive priority in cases of product shortage. Begin by
modifying product allocation functionality in SAP R/3 before
exploring APS ATP functionality
Long Term
Once L’Oréal has acquired greater ATP information from the
factories they could explore APS ATP functionality such as:
Customization and automation of the ATP search path by
customer/product combination to determine whether alternate
locations or alternate products can be offered to customers in
cases of product shortages
Multi-step availability checking against ATP, product
allocation and planned independent requirements
13
I. Project Scope and Activities
II. Overview of Our Supply Chain Findings
I. Processes
II. Inventory Review
III. Maturity Profiles
IV. Organization/ People and Culture
V. Technology
III. Supply Chain Roadmap
IV. Discussion of Next Steps
Presentation Agenda
14
We reviewed inventory data to assess the effectiveness of L’Oreal’s
planning processes
Data Used
Month end inventory for January 2003
Forecast & Sold-in data
Shipments data
Quantity received from plants
Period
January 2003 – January 2004 (13 months)
Products
12 L’Oreal Paris SKUs
A,B, and C products for 4 categories (Hair Care, Hair Color, Skin Care, and
Cosmetics)
Inventory Data Review
15
Observations
1. Long frozen horizons, high minimum order quantities, and inconsistent shipping
practices from L’Oreal factories result in high inventory levels and emergency
expediting costs (out of scope)
2. The same forecasting process should not be applied to all SKUs. It would be
beneficial to re-evaluate the logic used for different product demand types. Four
main product demand types were observed:
– Stable demand pattern
– Unstable demand pattern
– Stable pattern expect for promotions
– Low Volume-Negative inventory
3. Inventory planning practices during Promotional periods result in large forecasting
errors and large inventory fluctuations
4. Data Issues:
It is our understanding that the Forecast data provided is the last “corrected forecast”
rather than the original forecast used to make procurement decisions. We would
expect the real forecasting error would then be higher than the average +/-32%
calculated for the 12 L’Oreal Paris SKUs
Despite not accepting back orders, there is a mismatch between “Shipments out” and
“Sold-in” for a few SKUs. There is no clear explanation for this.
16
Absolute Forecasting Error
CategoryCategory AA BB CC AverageAverage
Hair Care 21% 28% 66% 39%
Hair Color 26% 15% 21% 20%
Skin Care 10% 46% 49% 35%
Cosmetics 25% 47% 24% 32%
Average 20% 34% 40% 32%32%
• As expected, forecast accuracy is higher with A items , except for the Hair Color
category, which needs further analysis
• The overall forecasting error suggests that a forecasting tool is needed
• L’Oreal needs to review its current safety stock levels to reflect the forecasting error for
each SKU in order to prevent shortages and reduce inventory
17
Managing Promotions
Promotional periods are known to
create disturbances to demand and
inventory planning across product
classifications
18
Data Issues
We expected the difference
between Sold-in and Shipped
data to be under 5%
B Class – Hair Care
We found some large deviations
(up to 36%) between Sold-in and
Shipped data. Investigation into
possible causes is required.
A Class – Hair Care
19
Supply Issues from L’Oreal Plants
There are strong factors that are out of L’Oreal Canada’s control and would
require L’Oreal international involvement to modify
• During the months
leading to October 2003,
the supplier had over-
shipped 3 times in
excess of the monthly
order
• One shipment had to be
stopped to prevent
extreme inventory levels
• Results in inventory
imbalances
A item – Hair Care
Supply: US Plant
Min order Qty. = 35,000
20
Supply Issues from Plants (Cont’d)
A more flexible supply
process results in lower
minimum order quantity
and stable shipping
patterns
C item – Cosmetics
Supply: US Plant
Min. order qty. = 288
21
Demand Patterns
Stable demand Unstable
demand
Stable except
for
promotion
Low Volume-
Negative
inventory
Average Demand
variability (σdemand)
13%
A-Skin Care
79%
C-Hair Care
148%
(13 months)
10%
(last 9 months)
C-Cosmetics
36%
B-Skin Care
Average Forecast
variability (σforecast)
8%
A-Skin Care
54%
C-Hair Care
144%
C-Cosmetics
56%
B-Skin Care
Comments Forecasting can make
matters worse
. Hair Care C-item.
Forecasting variability
is higher than demand
variability
Forecasting tools
are needed to
obtain a good
estimate
Have a single
demand peak in
March related to
promotion
Example for C-
Cosmetics:
Usual Sales = 600
March Sales= 7000
Often corresponds to
low demand volumes
For ex.: B- Skin Care.
Stock out for 2
months
Suggestions Do not forecast
Manage by min/max
Require a
forecasting tool to
be implemented to
improved the
process
Require a
forecasting tool to
be implemented to
improved the
process
Reordering timing
improvement
Improved safety
stocks may be
needed
22
I. Project Scope and Activities
II. Overview of Our Supply Chain Findings
I. Processes
II. Inventory Review
III. Maturity Profiles
IV. Organization/ People and Culture
V. Technology
III. Supply Chain Roadmap
IV. Discussion of Next Steps
Presentation Agenda
23
Maturity Profile – Context
A qualitative assessment of your operations from different perspectives
A joint assessment of business processes and practices
Assessed on a scale of “innocence” to “excellence” where excellence reflects the vision for
leading practices
Innocence
An organization
that exhibits few
or non of the
leading practices
commonly
adopted around
strategy, process
and support
capabilities
Awareness
An organization
that has a
rudimentary,
loosely-woven
set of competitive
capabilities
implemented;
lacks a true
understanding of
leading practices
Understanding
An organization
that understands
the required
capabilities for
competitive
success but has
implemented
only basic
strategy,
processes and
support
capabilities
Competence
An organization
that has not only
developed
competitive
capabilities but
has also actively
integrated them
into its daily
operations
Excellence
An organization
that has
differentiated
itself based on
strategy, process
and support
capabilities
leveraging
leading practices
24
Inn
oce
nce
Aw
are
nes
s
Und
ers
tan
din
g
Com
pet
enc
e
Exc
elle
nce
Maturity Profiles - Demand Planning Summary
L’Oréal Response AnalysisL’Oréal Response Analysis
• Total # respondents: 7
• Overall rating:
Understanding
• Range of responses:
Innocence to Competence
• Most disagreement
regarding “Sales and
Operation Planning”
• Standard deviation of
on a scale of 1 to 5
25
Maturity Profiles – Supply Planning Summary
Inn
oce
nce
Aw
are
nes
s
Und
ers
tan
din
g
Com
pet
enc
e
Exc
elle
nce
L’Oréal Response AnalysisL’Oréal Response Analysis
• Total # respondents: 3
• Overall rating: Awareness
• Range of responses: Innocence to
Understanding
• Very small disagreement among
respondents for each sub-element
• Average standard deviation of
out of 1 to 5 scale
26
Inn
oce
nce
Aw
are
nes
s
Und
ers
tan
din
g
Com
pet
enc
e
Exc
elle
nce
Maturity Profiles – Customer Service Summary
L’Oréal Response AnalysisL’Oréal Response Analysis
• Total # respondents: 2
• Overall rating:
Understanding
27
Maturity Profiles – Enabling Processes Summary
Inn
oce
nce
Aw
are
nes
s
Und
ers
tan
din
g
Com
pet
enc
e
Exc
elle
nce
L’Oréal Response AnalysisL’Oréal Response Analysis
• Total # respondents: 8
• Overall rating:
Understanding
• Range of responses:
Awareness to Competence
• Very small disagreement
among respondents for
each sub-element
• Average standard
deviation of out of 1 to
5 scale
28
I. Project Scope and Activities
II. Overview of Our Supply Chain Findings
I. Processes
II. Inventory Review
III. Maturity Profiles
IV. Organization/ People and Culture
V. Technology
III. Supply Chain Roadmap
IV. Discussion of Next Steps
Presentation Agenda
29
Organization
Current State
General
L’Oréal’s strengths are its marketing, product launches,
strong brand name, innovations and investment in R&D (4%
of revenue)
Health and Beauty is a growth industry
L’Oréal operates like a small business in that it is flexible
enough to be able to launch a product in 6 month while P&G
can take over 2 years to launch a product
Process-driven organization with cross-functional teams
Customers
Customers have become increasingly demanding and
stronger in negotiations
Customers describe their relationship with L’Oréal Canada
as a “Love / Hate” relationship. LOVE due to L’Oréal
products, brand strength and dynamic culture which help
attract consumers to their stores, but HATE because L’Oréal
has been ineffective stocking customers shelves
Opportunity
Strategic Change
Move from a…
Marketing driven to a Customer driven organization
Push to a Pull Model
Product focused to a Sales focused company
Communication with L’Oréal factories should focus on
helping them gain an awareness of their impact on the L’Oréal
Sales Companies ability to deliver and ensure greater levels of
customer satisfaction
Customer Responsiveness
L’Oréal has developed Cross Functional Task Forces made
up of 1 VP, client service rep, credit and sales to enable
L’Oréal to penetrate the various teams/departments at the
client site
Implement customer satisfaction surveys
30
People and Culture
Current State
People
L’Oréal Canada ‘s Supply Chain organization has
undergone a big transformation in the recent past in that
individuals who were considered “old school” or unwilling
to change were replaced by highly educated, younger
and dynamic resources (50-80%)
Resources are encouraged to speak out and share
their point of view. They are not looking for “Yes, men”,
but rather dynamic people who will question, speak with
conviction and improve the company and products
High energy level among all functions
High emphasis on employee empowerment and
openness
Sales and Marketing employees hired usually have
creative personalities and have difficulty with
administrative/operational processes
L’Oréal Canada is seen as a development centre
training resources for International L’Oréal positions
Culture
L’Oréal is a decentralized company; a sum of small
companies run by entrepreneurs with strict brand image rules
L’Oréal’s current culture supports continuous improvement
and a willingness to change . L’Oréal has recently worked
to bring the divisions and functions together in discussions to
improve forecasting processes
Opportunity
People
Implement personal performance reviews tying variable pay to
process KPI’s
Balance creative skill sets with administrative skills
Formalize cross-training of resources in General SCM principles
to ensure they gain an understanding of how their role fits withing
the organization and their impact on other departments’ ability to
effectively execute their functions downstream
31
I. Project Scope and Activities
II. Overview of Our Supply Chain Findings
I. Processes
II. Inventory Review
III. Maturity Profiles
IV. Organization/ People and Culture
V. Technology
III. Supply Chain Roadmap
IV. Discussion of Next Steps
Presentation Agenda
32
Technology – Issues and Opportunities
Issues
SAP
• L’Oréal Canada has implemented SAP FI/CO, SD, MM and
WM, however, they are using release which does not
support SAP’s newer products/modules
• SAP HR payroll release is in the process of being
implemented on a separate server and interfaced using ALE
to the system due to the separate releases
• L’Oréal has developed many customizations particularly in
the area of WM, which will complicate future upgrades
• L’Oréal has implemented BW and is in the process of rolling
it out to the various departments
• SAP is perceived as having brought additional complexity to
certain tasks (. product creation)
General
• IT has set up support numbers and have cross trained their
resources to support the organization
• IT is measuring their service levels for system availability and
technical (. PC) issue resolution, however, they are not yet
tracking service levels for software issue resolution (. SAP)
• IT initiatives for 2004 include:
• Upgrade to SAP
• Implementing a forecasting tool
• Commercial statistical information portal to consolidate
sales history, POS and Nielsen data
• BW rollout
• The Upgrade and APS tool may require the time and effort of
the same L’Oréal IT resources
Opportunity
SAP
Take advantage of the L’Oréal Paris SAP base configuration
package to obtain increased functionality and enable L’Oréal
Canada to benefit from SAP’s new modules (mySAP)
Review the new functionality in . Determine which new
functionality should be implemented and whether the new
functionality could eliminate any of L’Oréal Canada’s current
customizations
Ensure BW houses and consolidates sales history, Nielsen and
POS data to be used as input for a Demand Planning tool
APS Tool
L’Oréal to date has been researching forecasting tools. L’Oréal
would be better served by researching APS tools which will not
only satisfy their forecasting needs, but also additional planning
needs in the mid and long-term
Evaluate APS packages using a formalized method, visit clients
who have implemented various software packages and select
an APS software to implement
IT Department
Evaluate staffing needs for the upgrade and APS projects from
an IT and functional perspective
Set up performance metrics for the IT department to measure its
effectiveness at supporting L’Oréal Canada for software issue
resolution and to be incorporated into compensation plans
Calls resolved vs. Calls received
Time to close an issue
Customer satisfaction surveys
33
Conclusions
1. Although L’Oréal has streamlined their forecasting process, they are still not realizing
forecast accuracy targets. Review of the processes, acquiring the right expertise and the
implementation of an APS tool will help L’Oréal achieve greater forecast accuracy
2. L’Oréal Canada may be at the mercy of L’Oréal factories to obtain products, however,
there are steps L’Oréal Canada can take within their control to improve supply and better
manage inventory
3. We believe Finished Goods inventory can be reduced and shortages decreased by
adjusting inventory management practices to take into consideration demand and supply
patterns by groups of products
4. L’Oréal Canada is currently missing visibility to inbound shipments, thus hindering it’s
ability to provide accurate ATP information to its customers. However, L’Oréal can
improve customer service levels by introducing a formal and fair share product allocation
process
5. L’Oréal should consolidate their initial forecasting software findings and embark on a
more formal software selection process to ensure the selection of a package that best
meets their business requirements
34
I. Project Scope and Activities
II. Overview of Our Supply Chain Findings
I. Processes
II. Inventory Review
III. Maturity Profiles
IV. Organization/ People and Culture
V. Technology
III. Supply Chain Roadmap
IV. Discussion of Next Steps
Presentation Agenda
35
Roadmap Details and Assumptions
1. The review of L’Oréal’s Planning Organization will involve evaluating current resources’ skill sets and
determining gaps, defining demand planner job descriptions and potentially looking outside of L’Oréal
to hire forecasting/statistical expertise. The second part of this initiative is to review Demand Planner’s
compensation once an APS tool has been implemented to tie bonuses with forecast accuracy. The
Planning Organization as well as the change management component for having changed people’s
roles must be completed before the APS implementation begins.
2. The Process Review step involves reviewing L’Oréal Canada’s current processes in detail,
incorporating agreed upon recommendations into new processes as well as implementing “Quick Hits”.
Additional activities proposed during this step include:
formal product allocation policies and implementing them in SAP R/3
2. Data Cleansing
3. The BW data (POS, Nielsen, Sales History) will be leveraged by the Demand Planning tool
4. While it would be ideal for the SAP Upgrade to be completed before beginning the implementation of
an APS package, the Demand Planning module could be interfaced with BW (or one of L’Oréal’s
existing interfaces from R/3 may be leveraged) in order to kick-off the APS implementation sooner
5. The Demand Planning and VMI implementation can run in parallel, however, most clients choose to
“go-live” with Demand Planning and allow it to stabilize before going live with Supply Planning or using
Collaborative Planning functionality
6. The SCM training step includes:
cross-functional SCM training of the revised processes
Training for Team Members in the selected software
on the L’Oréal specific configured APS software to end users before Go-Live
7. We have included only VMI in terms of APS Supply Planning functionality within our Roadmap. Once
greater communication with the factories has been established additional APS Supply Planning
functionality can be explored
36
Supply Chain Roadmap
Week
1
Week
2
Week
3
Week
4
Week
5
Week
6
Week
7
Week
8
Month
3
Quarter
2
Quarter
3
Quarter
4
Quarter
1
Quarter
2
Quarter
3
Quarter
4Overall Activities
1. Project Mobilization
2. Review Planning
organizational model and roll-
out plan
3. Process review and redesign
for Demand Planning, Supply
Planning and Order Fulfillment
4. Inventory Management
5. Continue to consolidate and
roll-out all planning data in a
central repository (SAP
Business Warehouse)
6. Perform a software selection
for an APS Tool
7. SAP Upgrade to
8. Implement a Demand Planning
Tool
9. Develop and Conduct Cross
Functional SCM Training
10. Implement Forecast
Collaboration (Customer and
Supplier)
11. Implement Supply Planning
including VMI
Anticipated Timing
37
Supply Chain Roadmap
Week
1
Week
2
Week
3
Week
4
Week
5
Week
6
Week
7
Week
8
Month
3
Quarter
2
Quarter
3
Quarter
4
Quarter
1
Quarter
2
Quarter
3
Quarter
4Overall Activities
1. Project Mobilization
2. Review Planning
organizational model and roll-
out plan.
3. Process review and redesign
for Demand Planning, Supply
Planning and Order Fulfillment
4. Inventory Management
5. Continue to consolidate and
roll-out all planning data in a
central repository (SAP
Business Warehouse)
6. Perform a software selection
for an APS Tool
7. SAP Upgrade to
8. Implement a Demand Planning
Tool
9. Develop and Conduct Cross
Functional SCM Training
10. Implement Forecast
Collaboration (Customer and
Supplier)
11. Implement Supply Planning
including VMI
Anticipated Timing
Evaluate skill sets, conduct a
skill gap analysis and
potentially hire external
resources with forecasting /
statistical expertise
Review Planning
Organizational
Structure
Review compensation tied to
forecast accuracy once a tool
has been implemented
38
Supply Chain Roadmap
Week
1
Week
2
Week
3
Week
4
Week
5
Week
6
Week
7
Week
8
Month
3
Quarter
2
Quarter
3
Quarter
4
Quarter
1
Quarter
2
Quarter
3
Quarter
4Overall Activities
1. Project Mobilization
2. Review Planning
organizational model and roll-
out plan.
3. Process review and redesign
for Demand Planning, Supply
Planning and Order Fulfillment
4. Inventory Management
5. Continue to consolidate and
roll-out all planning data in a
central repository (SAP
Business Warehouse)
6. Perform a software selection
for an APS Tool
7. SAP Upgrade to
8. Implement a Demand Planning
Tool
9. Develop and Conduct Cross
Functional SCM Training
10. Implement Forecast
Collaboration (Customer and
Supplier)
11. Implement Supply Planning
including VMI
Anticipated Timing
Review products being
forecasted and determine
criticality and cleanse
data
Improve and implement
mechanisms to provide
customers with different service
levels . allocation, customer
satisfaction surveys …
Implement
process changes
39
Supply Chain Roadmap
Week
1
Week
2
Week
3
Week
4
Week
5
Week
6
Week
7
Week
8
Month
3
Quarter
2
Quarter
3
Quarter
4
Quarter
1
Quarter
2
Quarter
3
Quarter
4Overall Activities
1. Project Mobilization
2. Review Planning
organizational model and roll-
out plan.
3. Process review and redesign
for Demand Planning, Supply
Planning and Order Fulfillment
4. Inventory Management
5. Continue to consolidate and
roll-out all planning data in a
central repository (SAP
Business Warehouse)
6. Perform a software selection
for an APS Tool
7. SAP Upgrade to
8. Implement a Demand Planning
Tool
9. Develop and Conduct Cross
Functional SCM Training
10. Implement Forecast
Collaboration (Customer and
Supplier)
11. Implement Supply Planning
including VMI
Anticipated Timing
Capture relevant data
for A and major B
products and analyze
their demand, inventory
movements and
corresponding forecasts
Identify corrective
actions
Implement changes
40
Supply Chain Roadmap
Week
1
Week
2
Week
3
Week
4
Week
5
Week
6
Week
7
Week
8
Month
3
Quarter
2
Quarter
3
Quarter
4
Quarter
1
Quarter
2
Quarter
3
Quarter
4Overall Activities
1. Project Mobilization
2. Review Planning
organizational model and roll-
out plan.
3. Process review and redesign
for Demand Planning, Supply
Planning and Order Fulfillment
4. Inventory Management
5. Continue to consolidate and
roll-out all planning data in a
central repository (SAP
Business Warehouse)
6. Perform a software selection
for an APS Tool
7. SAP Upgrade to
8. Implement a Demand Planning
Tool
9. Develop and Conduct Cross
Functional SCM Training
10. Implement Forecast
Collaboration (Customer and
Supplier)
11. Implement Supply Planning
including VMI
Anticipated Timing
41
Supply Chain Roadmap
Week
1
Week
2
Week
3
Week
4
Week
5
Week
6
Week
7
Week
8
Month
3
Quarter
2
Quarter
3
Quarter
4
Quarter
1
Quarter
2
Quarter
3
Quarter
4Overall Activities
1. Project Mobilization
2. Review Planning
organizational model and roll-
out plan.
3. Process review and redesign
for Demand Planning, Supply
Planning and Order Fulfillment
4. Inventory Management
5. Continue to consolidate and
roll-out all planning data in a
central repository (SAP
Business Warehouse)
6. Perform a software selection
for an APS Tool
7. SAP Upgrade to
8. Implement a Demand Planning
Tool
9. Develop and Conduct Cross
Functional SCM Training
10. Implement Forecast
Collaboration (Customer and
Supplier)
11. Implement Supply Planning
including VMI
Anticipated Timing
Develop a list of
functional
requirements and
selection criteria
Research various
software packages
and short list them
Perform a gap
analysis and rank
vendors
42
Supply Chain Roadmap
Week
1
Week
2
Week
3
Week
4
Week
5
Week
6
Week
7
Week
8
Month
3
Quarter
2
Quarter
3
Quarter
4
Quarter
1
Quarter
2
Quarter
3
Quarter
4Overall Activities
1. Project Mobilization
2. Review Planning
organizational model and roll-
out plan.
3. Process review and redesign
for Demand Planning, Supply
Planning and Order Fulfillment
4. Inventory Management
5. Continue to consolidate and
roll-out all planning data in a
central repository (SAP
Business Warehouse)
6. Perform a software selection
for an APS Tool
7. SAP Upgrade to
8. Implement a Demand Planning
Tool
9. Develop and Conduct Cross
Functional SCM Training
10. Implement Forecast
Collaboration (Customer and
Supplier)
11. Implement Supply Planning
including VMI
Anticipated Timing
43
Supply Chain Roadmap
Week
1
Week
2
Week
3
Week
4
Week
5
Week
6
Week
7
Week
8
Month
3
Quarter
2
Quarter
3
Quarter
4
Quarter
1
Quarter
2
Quarter
3
Quarter
4Overall Activities
1. Project Mobilization
2. Review Planning
organizational model and roll-
out plan.
3. Process review and redesign
for Demand Planning, Supply
Planning and Order Fulfillment
4. Inventory Management
5. Continue to consolidate and
roll-out all planning data in a
central repository (SAP
Business Warehouse)
6. Perform a software selection
for an APS Tool
7. SAP Upgrade to
8. Implement a Demand Planning
Tool
9. Develop and Conduct Cross
Functional SCM Training
10. Implement Forecast
Collaboration (Customer and
Supplier)
11. Implement Supply Planning
including VMI
Anticipated Timing
44
Supply Chain Roadmap
Week
1
Week
2
Week
3
Week
4
Week
5
Week
6
Week
7
Week
8
Month
3
Quarter
2
Quarter
3
Quarter
4
Quarter
1
Quarter
2
Quarter
3
Quarter
4Overall Activities
1. Project Mobilization
2. Review Planning
organizational model and roll-
out plan.
3. Process review and redesign
for Demand Planning, Supply
Planning and Order Fulfillment
4. Inventory Management
5. Continue to consolidate and
roll-out all planning data in a
central repository (SAP
Business Warehouse)
6. Perform a software selection
for an APS Tool
7. SAP Upgrade to
8. Implement a Demand Planning
Tool
9. Develop and Conduct Cross
Functional SCM Training
10. Implement Forecast
Collaboration (Customer and
Supplier)
11. Implement Supply Planning
including VMI
Anticipated Timing
APS Software
package training for
team
General SCM
Training
End user training
45
Supply Chain Roadmap
Week
1
Week
2
Week
3
Week
4
Week
5
Week
6
Week
7
Week
8
Month
3
Quarter
2
Quarter
3
Quarter
4
Quarter
1
Quarter
2
Quarter
3
Quarter
4Overall Activities
1. Project Mobilization
2. Review Planning
organizational model and roll-
out plan.
3. Process review and redesign
for Demand Planning, Supply
Planning and Order Fulfillment
4. Inventory Management
5. Continue to consolidate and
roll-out all planning data in a
central repository (SAP
Business Warehouse)
6. Perform a software selection
for an APS Tool
7. SAP Upgrade to
8. Implement a Demand Planning
Tool
9. Develop and Conduct Cross
Functional SCM Training
10. Implement Forecast
Collaboration (Customer and
Supplier)
11. Implement Supply Planning
including VMI
Anticipated Timing
Post Forecasts within
a Web Based Tool
and pilot with specific
Suppliers and
Customers before
rolling it out
46
Supply Chain Roadmap
Week
1
Week
2
Week
3
Week
4
Week
5
Week
6
Week
7
Week
8
Month
3
Quarter
2
Quarter
3
Quarter
4
Quarter
1
Quarter
2
Quarter
3
Quarter
4Overall Activities
1. Project Mobilization
2. Review Planning
organizational model and roll-
out plan.
3. Process review and redesign
for Demand Planning, Supply
Planning and Order Fulfillment
4. Inventory Management
5. Continue to consolidate and
roll-out all planning data in a
central repository (SAP
Business Warehouse)
6. Perform a software selection
for an APS Tool
7. SAP Upgrade to
8. Implement a Demand Planning
Tool
9. Develop and Conduct Cross
Functional SCM Training
10. Implement Forecast
Collaboration (Customer and
Supplier)
11. Implement Supply Planning
including VMI
Anticipated Timing
Pilot VMI with one
Customer before
rolling it out to other
key customers
47
Supply Chain Roadmap
Week
1
Week
2
Week
3
Week
4
Week
5
Week
6
Week
7
Week
8
Month
3
Quarter
2
Quarter
3
Quarter
4
Quarter
1
Quarter
2
Quarter
3
Quarter
4Overall Activities
1. Project Mobilization
2. Review Planning
organizational model and roll-
out plan.
3. Process review and redesign
for Demand Planning, Supply
Planning and Order Fulfillment
4. Inventory Management
5. Continue to consolidate and
roll-out all planning data in a
central repository (SAP
Business Warehouse)
6. Perform a software selection
for an APS Tool
7. SAP Upgrade to
8. Implement a Demand Planning
Tool
9. Develop and Conduct Cross
Functional SCM Training
10. Implement Forecast
Collaboration (Customer and
Supplier)
11. Implement Supply Planning
including VMI
Anticipated Timing
Pilot VMI with one
Customer before
rolling it out to other
key customers
48
Supply Chain Roadmap
Week
1
Week
2
Week
3
Week
4
Week
5
Week
6
Week
7
Week
8
Month
3
Quarter
2
Quarter
3
Quarter
4
Quarter
1
Quarter
2
Quarter
3
Quarter
4Overall Activities
1. Project Mobilization
2. Review Planning
organizational model and roll-
out plan.
3. Process review and redesign
for Demand Planning, Supply
Planning and Order Fulfillment
4. Inventory Management
5. Continue to consolidate and
roll-out all planning data in a
central repository (SAP
Business Warehouse)
6. Perform a software selection
for an APS Tool
7. SAP Upgrade to
8. Implement a Demand Planning
Tool
9. Develop and Conduct Cross
Functional SCM Training
10. Implement Forecast
Collaboration (Customer and
Supplier)
11. Implement Supply Planning
including VMI
Anticipated Timing
49
I. Project Scope and Activities
II. Overview of Our Supply Chain Findings
I. Processes
II. Inventory Review
III. Maturity Profiles
IV. Organization/ People and Culture
V. Technology
III. Supply Chain Roadmap
IV. Discussion of Next Steps
Presentation Agenda
50
Next Steps
1. Agreement on overall substance of our findings
Include any key issues not identified
2. Agreement on activities outlined in the Roadmap
Modified as appropriate to reach agreement
3. Project Mobilization
Develop Project Plan and Project Structure
NOTE: We are in the process of contacting clients who are live on various forecasting
packages for L’Oréal to talk and potentially meet with
51
Appendix
Appendix
I. CVCD Result
Benchmark data is CPG data which is not a perfect comparison for L’Oréal. These
numbers are only meant as a reference for L’Oréal.
We used a 25% Realization Rate, these should be reviewed for feasibility
II. Sample BCS Software Selection Tools
III. Gartner ranking of SCM Vendors for Distribution
53
Potential Benefits
L’Oréal FG Inventory: $38,752,000
L’Oréal COGS: $163,522,000
L’Oréal FG Inventory Turns: 4
BIC FG Inventory Turns (*): 17
L’Oréal FG Inventory at BIC: $9,618,941
FG Inventory Improvement
Potential: $29,133,059
Realization Rate 25%
Inventory Reductions
Realizable: $7,283,000
Carrying Cost Savings: $510,000
Reduction in Inventory: 19%
Benefits Logic and Assumptions
• The challenge is to increase finished goods
inventory turns while at the same time
increasing service levels. This will be
possible by increasing visibility of demand
and supply and the synchronization of
planning, procurement and distribution with
sales
• Factory lead times, transit lead times for
imports from Europe, and product launches
play a factor in the amount of inventory
necessary to be carried by L’Oréal Canada
• Assuming a Carrying Cost of 7%
Benefits:
Reduced Finished Good Inventory
(*): BIC: Best in class
54
Benefits Logic and Assumptions
• Write-offs include destroyed products,
shrinkage and damaged products
• New systems and processes will ensure the
right product is available at the right place
on time and in the correct quantity thereby
reducing these write-offs
• With better forecasting and inventory
management practices, the amount of write
-offs should decrease. However, we
understand a portion of write-offs are due
to the nature of the fashion and beauty
industry and L’Oréal’s preference to have
their customers return unused products
rather than resale them to a discounter to
protect their brand image
Potential Benefits
L’Oréal Inventory Write-offs: 1,213,000
L’Oréal Total Inventory: $38,752,000
L’Oréal Inventory Write-Offs
as a % of Total Inventory: %
BIC Inventory Write-Offs: %
L’Oréal Inventory Write-Offs
at BIC: $775,040
Inventory Write-Off
Reduction Potential: $437,960
Realization Factor: 25%
Inventory Write-offs Reduction
Realizable: $109,500
Benefits:
Reduced Inventory Write-offs
55
Benefits Logic and Assumptions
• As L’Oréal does not consistently track
those orders which are refused due to
insufficient product availability, actual
service levels may even be lower than our
calculations show
• With better forecasting and inventory
management practices, service levels
could increase to closer to BIC
performance – this would increase both
revenue and margin performance
• Through enhanced forecast accuracy,
demand planning and supply planning,
there is a realizable opportunity to reduce
the lost sales as a result of back orders
• L’Oréal has achieved 94% service levels
with their top 6 customers
• Assumed a 40% Profit Margin
Potential Benefits
L’Oréal Sales: $585,621,000
L’Oréal Orders Fulfilled: $617,051,000
L’Oréal Orders Received: $671,080,000
L’Oréal Service Level: %
L’Oréal Lost Sales at Current
Service Level: $47,148,651
BIC Service Level: 99%
L’Oréal Lost Sales at BIC: $5,856,210
Lost Sales Reduction
Potential: $41,292,441
Realization Factor 25%
Lost Sales Reduction
Realizable: $10,323,000
Profit Realizable: $4,129,000
Benefits:
Increased Sales
56
Benefits Logic and Assumptions
• We understand there is some recovery on
Sales Returns through the Employee Store
• With better forecasting and inventory
management practices, the amount of write
-offs should decrease. However, we
understand a portion of write-offs are due
to the nature of the fashion and beauty
industry and L’Oréal’s preference to have
their customers return unused products
rather than resale them to a discounter to
protect their brand image
• We have not included the cost savings by
reducing the number of items to be
destroyed
Potential Benefits
L’Oréal Sales: $585,621,000
L’Oréal Sales Returns: $30,765,000
L’Oréal Sales Returns as a %
% of Sales:
BIC Returns as a % of Sales: .40%
L’Oréal Sales Returns
at BIC Level: $2,342,484
Reduced Sales Returns
Reduction Potential: $28,422,516
Realization Rate 25%
Sales Return Reduction
Realizable: $7,106,000
Recoverable Carrying Costs $497,000
Benefits:
Reduced Sales Returns
57
Potential Benefits Summary
Potential Benefit
Type
One Time Reduction Annualized Benefits
Finished Goods
Inventory Reduction
7,283,000 510,000
Inventory Write-Off
Reduction
109,500
Increased Profit (Lost
Sales Reduction)
4,129,000
Sales Return
Reduction
7,106,000 497,000
Total $5,136,000
58
Potential Qualitative Benefits L’Oréal Should Experience
Reduced Obsolescence
Reduction in Overtime, Labour
Decreased Destruction Costs
Reduction in the need to use their overflow satellite warehouse (decrease
carrying costs)
Reduction in return transportation costs
Increased Customer Satisfaction and Loyalty
59
Appendix
I. CVCD Result
II. Sample XYZ BCS Software Selection Tools
III. Gartner ranking of SCM Vendors for Distribution
60
Typical Software Selection Activities
1. Determine the target processes the software must support
2. Identify functional requirements and technological criteria through interviews and/or
session(s). Develop evaluation grid with weighted requirements.
4. Evaluate various software packages
5. Short list vendors
6. Develop and send RFP
7. Develop scripts for Vendors to demonstrate
8. Perform a gap analysis per vendor
9. Score and rank vendors
10. Obtain references . call and/or visit clients of the vendor solution
11. Select software solution
61
Detailed Inventory Management Analysis
1. Identify inventory investment / reduction opportunities
Evaluate the size of inventory reduction that would be possible
Assess quick hits potential and implement short-term changes
2. Review the impact of current demand forecasting and inventory planning practices
used for different product categories
For example, do not forecast SKU’s with stable demand patterns
Review planning practices associated with “Promotion” periods
3. Evaluate the potential for updating ABC classifications
Will help ensure that Inventory Management / Sourcing / Planning / Key Suppliers
are able to focus on the “significant few” products which drive L’Oreal’s business
4. Develop a service level - based approach to determining safety stock coverage for
different SKU classifications with next steps for implementation
Empirically determine service levels for the most important items (based on
historical performance)
62
SERVICE-LEVEL APPROACH TO DETERMINE SAFETY STOCK
Evaluate the impact of different service level scenarios at current lead times to establish
the overall inventory implications.
For each scenario, compare a model-based inventory required to meet these
service levels against L’Oreal average inventory level for the same SKU classes
over the past year
63
Inventory Investment / Reduction opportunities
• The estimated overall reduction in Finished Goods inventory should be validated.
• Determine the Finished Goods Inventory Reduction (%) range for each
division. For example:
Items Low Medium High
A 5% 10% 15%
B 7% 12% 20%
C 15% 30% 40%
Assess potential quick hit initiatives to realize short-term benefits prior to
significant process change or major technology implementation
To determine the overall inventory reduction opportunity, the historical
demand/supply alignment data for A, B, and C items from each division will be
graphed to illustrate the inventory trends associated with the total shipments, and
orders each week (or month). By graphing the high, medium, and low inventory
reduction scenarios, an overall Inventory Reduction % with a +/-20% accuracy
should be calculated.
64
Sample Demand Planning Requirement List
65
Sample APS Requirements List
66
Sample Vendor Selection Scorecard
67
Appendix
I. CVCD Result
II. Sample XYZ BCS Software Selection Tools
III. Gartner ranking of SCM Vendors for Distribution
68
Gartner Group Magic Quadrant – Distribution Vertical
69
Gartner’s Magic Quadrant – Visionaries and Niche Players (Jan 2003)
SAP APO – Visionary (all verticals)
Continues to deepen support of discrete and process industry requirements.
Recent releases include campaign, safety stock, characteristics-based planning
i2 – Visionary (discrete, distribution), Niche (process)
Deep industry capabilities in many markets, especially high-tech, . automotive OEMs
New rapidly deployable solutions for core modules to help reduce complexity and costs
Manugistics – Visionary (all verticals)
Deep industry capabilities in CPG, Retail and automotive
Continues to expand solutions in discrete, process and public
Launched ver in Q1 2003 – web enabled architecture delivering additional adaptive planning and
execution capabilities
Adexa – Visionary (discrete)
Continues to extend competence in its historically strong high tech vertical
Increasing functional competence in the broad segment of industrial manufacturing and automotive
®
®
70
