Travel retail exclusives supply chain: Strategic alignment and process optimization

Abstract

One of the regions within Estée Lauder Companies (ELC), i.e. Travel Retail (TR), currently exhibits strong growth and aims to further accelerate this growth via a product offering exclusive to this channel, i.e. Travel Retail Exclusives (TREX). Often a TREX is a set or kit of multiple products offered at an attractive price. Due to constraints on the speed-to-market and/or the minimum order quantities TREX cannot be produced via the global supply chain process, hence, TR has installed the local kitting process in which certain steps are eliminated or shortened. However, the process is far from optimal and is characterized by misalignment and miscommunication, (time) inefficiencies and forecast and stock issues. The report, which is dived into six subprojects, elaborates on multiple initiatives which will support this acceleration of TREX. The first two subproject mainly focus on steps prior to the process, i.e. a review of the supply chain model and development of a proper decision-making process. The third and fourth subproject focus on the optimization of the process itself and is divided into a general part and a deep dive in the packaging development of a TREX set. Finally, the remaining subproject elaborate on measures that will occur after the process execution, i.e. performance evaluation and continuous improvement. A review of the currently adopted supply chain model, which adheres to a make-to-stock model, demonstrated the lack of responsiveness and agility to respond to the fast changing behavior of end consumers and increasing customization requirements. In order to reach the strategic goals, TR should introduce multiple supply chain models, which are each specific to a particular product, or in this case TREX, category. By examining multiple supply chain models, four TREX specific supply chain models are identified. Next to the existing make-to-stock model, one make-to-order model and two variations on the assemble-to-order model are proposed. To determine the most appropriate use of each model, a set classification method is installed based on whether a set is pushed onto the market by the Marketing team or created due to a retailer request, which implies a customer pull. As the level of customization strongly depends on the driver behind the TREX set ideation, the following four categories were obtained, i.e. the innovative, beauty trend, medium fast/medium customized and a highly customized set. Furthermore, the packaging complexity drives up lead time and is therefore considered to be the second important criterion for this supply chain based classification. The packaging can be either low, medium or high complexity depending on the packaging components as well as the diversity of products that it will contain. Finally, the time allowed to execute the set will impose limitations on the use of certain supply chain models. The combination of all above described insights result in the set classification into different supply chain models, which links a supply chain model to a specific set category and allows to achieve the requested level of responsiveness. The final four supply chain models will include an innovative, fast, medium fast and highly customized track. However, to deploy the models and run them in parallel, several inhibiting factors are encountered. The report provides multiple options, also part of other subprojects, to resolve these shortcomings and enhance the implementation of the classification. The second subproject formalizes the set execution decision-making process among brands via a decision tree and RACI matrix. The decision tree includes five major analysis and/or checks, i.e. a strategic alignment check, a profitability analysis, a production feasibility analysis, concept revision and priority evaluation. While the decision tree clearly outlines the different steps or checks that need to be performed, the RACI matrix maps out who will be involved in the decision associated to it. The RACI matrix will resolve the lack of decision ownership and create visibility on who to contact for support. The third subproject concerns the optimization of the current local kitting process. First, the current process is outlined and its pain points and hurdles are identified. These pain points have been clustered in three main areas, i.e. misalignment, time inefficiencies and forecasting and stock securing stock issues. Within the fourth subproject, an additional split up is made between internal and external processes. The optimization of the internal processes involves three topics, i.e. the standardization of packaging, the realization of a shortened artwork development and the implementation of late stage differentiation. The first topic is achieved by employing the four variety management strategies, i.e. component families, commonalities, product modules and platforms. In order to curtail the timeline of the artwork development (the second topic) solutions are proposed to standardize via the use of an artwork database, speed up the development by employing a TR dedicated photographer and shorten the waiting time for approval by installing ad hoc calls to request artwork approvals rather than emails. Finally, the report discusses three techniques to enable late stage differentiation (the third topic), i.e. DataLase, direct printing and instant foil printing. The last two techniques are already been examined by the global supply chain department and thus provide the highest probability of being implemented. On the other hand, the external improvements are going to be focused in strengthening the relationship with the existing ELC qualified suppliers. In order to do it, are proposed two initiatives. The first one is a TR supplier database for secondary packaging which is going to contain a list of the most common types of packaging needed to procure in order to complete the TREX, the information of the supplier suggested for each commodity and the person inside ELC that can support in the selection process in case that further information is needed. The second one is a supplier challenge that has as main purpose to build up the relation with the strategic suppliers. This is going to be done in three different stages. At the beginning, are going to be selected the key suppliers that can procure the most relevant secondary packaging commodities. After doing this, a phase of alignment between ELC and the strategic vendors is going to allow to look for actions that improve the lead time without affecting the quality. The second stage will be to leverage economies of scale. The results gotten from the variety management strategies are going to be used as inputs to start developing standardized packaging with the strategic suppliers. The last stage will be to boost innovation via the suppliers. As they are the experts in the packaging industry, the suppliers can be a resource to develop creative solutions to challenges that TR could be facing in this field in the future. The fifth and sixth subprojects are going to allow the review of the TREX. The fifth subproject is the creation of a dashboard that will provide at-a-glance visibility of key supply chain metrics and KPIs to track the performance of the TREX by brand, category, and retailer. The scope of the last subproject will be to enhance continuous improvement. It provides options like the realization of Kaizen events to solve or improve tasks (e.g forecast issues and set classification), initiatives of open innovation to allow people outside the CoE to participate in the streamlining of the packaging, and defined tasks for the CoE team related to continuous improvement.