An Operations Makeover for L’Oreal
Process Analysis is the documentation and detailed understanding of how work in a company is performed and how it can redesigned. By looking at the business’ strategic issues you are able to identify opportunities for improvement. Process analysis begins with identifying and defining a new opportunity for improvement and following through with implementing and controlling the revised process.
L’Oreal is the world’s largest cosmetics company and had earned a winning title on the Gartner’s Top 25 Supply Chain, but not before a dramatic makeover of their supply chain. The company has a highly complex operation with over 34 brands, 150+ distribution centers and 8 distribution channels. These are challenges that require the supply chain leaders of L’Oreal to have a certain amount of adaptability to keep their global customers happy. This blog post will be dedicated to L’Oreal and how the brands strategic move to redesign their supply chain can be looked at through the perspective of the Six Sigma Improvement Model.
From what we learned in class, we know that the Six Sigma method is a methodology for improving the quality of operations management by eliminating errors, reducing costs, and creating more efficient operations. The Six Sigma Improvement Model can be applied to L’Oreal’s process improvement.
Define – the first step in this process is identifying the scope and boundaries of the process that must be analyzed. Once scope is established, it is crucial to determine the characteristics of the process’s output that are critical to customer satisfaction. L’Oreal’s previous approach was to segment each distribution channel. With over 7,000 employees working across brands, the company identified a need to centralize and regulate the processes that were individual to specific areas of each brand to make sure the same levels of quality and service were being provided. It
Measure – Metrics are performance measure for the process and the steps within it. For L’Oreal, the corporate head of supply chain measured improved sales forecast accuracy rates, lower costs of logistics, and increased shipments as their key metrics during the changing period of their supply chain.
Analyze – During this stage of the process, it is essential to identify the root causes of specific problems to understand what changes need to be made and the best tactics to achieve those goals. From the perspectives of experts on the team, the key to the efficiency improvements mentioned above was the closer involvement in supply chain executives in the sales forecasting activities that would otherwise be the responsibility of sales and marketing teams. The L’Oreal Team identified that the type of transformation they were looking for would only be possible if the supply chain was closer to the markets and customers from the starting point to the end.
Here is an interesting video from the VP of the US Market Supply Chain at L’Oreal. Here she talks about how specific internal changes related to the supply chain have led to improved performances. She goes in depth about the role of the consumer will be touched on in a later point.
Improve – This step entails using analytical and creative thinking to generate a list of improvements. It should be made clear how the revised process will work, the expected performance expected, and the various metrics that will be used. From there, changes are implemented. For L’Oreal, in each market the company now has supply chain teams dedicated to customers that report directly to the general manager of the market. This way there is a proximity and accountability of the supply chain within specific markets.
Control – After the improvement phase, the company must monitor the process to make sure that performance levels are maintained. There was a new set of IT visibility platforms put in place that allowed supply chain teams to see on an item level how sales were performing in customers’ facilities. This then gave insight into other factors like how price promotions were performing and what future sales forecasts would look like.
Why do you think a tool like the Six Sigma Method is beneficial to a large company like L’Oreal? How would it differ for a smaller company? A service based company?
References:
http://www.loreal-finance.com/en/annual-report-2015/operations
https://theloadstar.co.uk/loreal-supply-chain-transformation/
Jessica,
I think you were able to find a great, newer example of a company and supply chain that could easily apply the six sigma model. It is amazing to think that L’Oréal was ranked as one of the best 25 supply chain company’s, yet they decided to move forward and completely redo it. This is a prime example of a company that is always looking forward, and not being complacent with their current state, which is a key characteristic of many great companies.
Not only has L’Oréal’s change increase productivity and efficiency, but also has helped the environment. I would say that this change was risky due to their prior success, but appears to have paid off a great deal.
With so many brands in the beauty industry, it is easy to recognize that they have a very large, complex supply chain. It would be much easier for a smaller company to apply the six sigma model and apply new changes because there are not nearly as many moving parts.
Jessica,
It is interesting you looked at the redesign of L’Oreal’s supply chain through the Six Sigma Model. It is unusual to think of successful companies needing to restructure their operations because one would think if a company is successful why should any changes be made. It is like the saying; ‘if it ain’t broke don’t fix it’. However, if a company wants to continue to be successful they need to be ahead and stay ahead of their competitors with forward thinking. For example, successful sports teams need to find ways to win against other teams that have the similar resources to them. While sports are different from businesses, parallels can be draw between the two. Furthermore, there has been a lot of insight on how the Chicago Cubs won the 2016 World Series. In interviews with Theo Epstein, the President of Baseball Operations for the Cubs, he talks about rebuilding the Cubs when he first got to the organization. He discusses how he realized that the “moneyball” approach was not enough to win championship since other teams have discovered the approach. He needed to find a different approach when rebuilding the Cubs in order for them to be successful. One can also use the Six Sigma model when looking at Theo Epstein’s rebuilding of the Chicago Cubs. Therefore, the Six Sigma model can be beneficial not just to big companies like L’Oreal. It can have uses outside of business operations.
Here is an article looking into Theo Epstein as a leader and at the changes he made to the Chicago Cubs: http://fortune.com/2017/03/23/theo-epstein-chicago-cubs-worlds-greatest-leaders/.
The interview of the Vice President of US Market Supply Chain at L’Oreal Luxe you attached gave an inside perspective into the responsibilities of the supply chain team within a company. Andrea mentions the importance of the making sure the supply chain connects with the customers. In addition, she mentions that the supply chain team works with the marketing, finance, and sales organization teams within L’Oreal. These comments highlight what we learned in class about the importance of process and the supply chain.
Jessica,
It is extremely important for a large company like L’oreal to have the most efficient supply chain as possible. With 34 of the most recognizable brands in the beauty industry, there is constant demand for their products. It is interesting to see how a large company like L’Oreal facilitates a reorganization of their supply chain. With so many brands, facilities, and employees it takes a lot of organization and consideration of all the moving parts.
This summer, I worked at a start-up whose business model is to release new shoes from Italy each week. Sometimes an order of shoes would be finished months before they were slated to be released. For shipments this these, they decided to change their shipment methods to the US from expedited air to deferred boats. It took a lot of planning and organization to finally instigate this, but it was worth it because they saved thousands on shipping. For small companies, this makes a huge impact on the bottom line.
It is important for companies big or small to make improvements wherever they can to make their supply chain more efficient and the company more profitable. Luckily for L’Oreal it seems to be working. It was just announced that not only are their supply chain improvements working, but they are also one of the “58 Companies Leading the Change Against Climate Change.” (http://www.sustainablebrands.com/news_and_views/supply_chain/sustainable_brands/cdp_names_58_companies_leading_charge_tackling_climat)
Jessica,
I think that the Six Sigma Method is incredibly important in a large company like L’Oreal. Identifying even small issues can improve efficiency in a big way. For example, if they streamline a nested process like putting a cap on a tube of lipstick with an automated machine which saved a few seconds and cents for each tube of lipstick, that would add up to a lot of money and time saved. This could allow for more units produced and sold, leading to more money for L’Oreal.
For a small company, the Six Sigma Method can still apply and help with increasing inefficiency. It would, however, just be on a smaller scale and some steps might be “skipped” or done more quickly or subconsciously. Tom Pyzdek argues (in disagreement of “Six Sigma Experts”) that it is important and can be used efficiently in a small business, just like a large corporation.
References:
https://www.isixsigma.com/implementation/basics/roadmap-deploying-six-sigma-small-businesses/
Brandon, I completely agree with your point about Six Sigma on small business. The benefits of implementing such technique in a small business would help it grow tremendously. Unfortunately, hiring a high qualified professional to implement the program requires a lot of capital, something that many small companies might don’t have much. Six sigma offers several levels of training when it comes to the methodology. When a course is completed, one would get a belt that symbolizes the level of expertise; these belts go from white being the most basic to Master Black belt which is the highest possible.
For a small company, I would suggest that instead of hiring a black belt professional they go with the most affordable but still valuable level, white. This way the company does not spend as much money but would become more efficient and have an increase in capital. When this happens, they can train the employees with the white level in order to move up and to be able to train others afterwards. By doing this, the company would grow bigger and would have an enormous increase in revenue and efficiency. The trainees would be able to apply their knowledge into process improvements or even process reengineering.
Hi Jessica, I really enjoyed your post and the connections you drew between L’Oreal’s supply chain redesign and Bill Smith’s Six Sigma Improvement Model. When watching the video from the Vice President of United States Market Supply Chain at L’Oreal that you embedded, I was particularly interested when Andrea discussed the notion that the supply chain team has a duty to ensure that the customer has a great in-store experience with both the product and the brand. I have never thought about inventory or supply chain in the context of the consumer and how it connects to the consumer and relates to the overall consumer experience. Andrea also discussed how the supply chain team at L’Oreal Luxe works hand in hand with the marketing and sales teams to improve the customer experience at every point. I think that L’Oreal’s transition to a more consumer-driven supply chain was an extremely insightful decision, driven by the Six Sigma Improvement Model that many companies can learn and take insights from.
Jessica,
I too was interested in Andrea’s discussion about the responsibility of the supply chain. Usually, when thinking about customer satisfaction, supply chain management does not first enter my mind. However, in this case, L’Oreal’s unique structure that integrates its supply chain with marketing and sales makes for a comprehensive evaluation of customer satisfaction. Because of this, L’Oreal can pinpoint exact points throughout the supply chain that could improve customer satisfaction. I think this directly relates to the importance of control, discussed by Jessica. Through monitoring the process to make sure that performance levels are subpar and maintained, the company can ultimately better control customer satisfaction. I think this idea is exactly paralleled in L’Oreal’s practice of focusing on the supply chain to gauge and improve customer experience.