International Supply Chain Analysis of L'Oreal: Report

This report provides a comprehensive analysis of L'Oreal's international supply chain, focusing on its design, planning, and implementation. It begins with an overview of L'Oreal's operations and the need for changes in its supply network design. The report then explores various supply network configurations, highlighting the relevance of efficient and fast chain models to L'Oreal's business. Furthermore, it delves into the adoption of a response-based business model, emphasizing the importance of factors like adequate research, organizational structure, and workforce availability. The report also examines various procurement strategies, including Kanban, Just in Time, Global Sourcing, and Green Purchasing, recommending a shift from a push-based to a pull-based system. The adoption of Collaborative Planning, Forecasting, and Replenishment (CPFR) is also discussed. The report concludes with recommendations for further improvements in L'Oreal's supply chain strategies, including an analysis of the SCOR model, and its application to L'Oreal's supply chain processes such as plan, source, make, deliver, and return.

International Supply Chain
Planning, Design and
Implementation

EXECUTIVE SUMMARY
International supply chain designing, and management is integral part of firm’s
operations. Present report deals with L’Oreal, which is multinational firm, engaged in personal
care or cosmetics industry. Supply chain network design is of utmost importance to company to
attain improved profitability and enhanced customer satisfaction. Supply chain network design
implies to assess policies and programs and to meet targets for attaining long-term objectives in
the best manner possible. On the other hand, supply chain models are of great importance.
Business models are relevance to efficient chain model and fast chain model.
Furthermore, procurement strategies like Kanban, Just in Time, Global Sourcing and
Green Purchasing are discussed so that manufacturing can be done in a better manner by
sourcing appropriate materials from suppliers. Apart from it, cross-functional supply chain
drivers are explained which pricing, information and sourcing are forming the backbone of
business model adopted by L'Oreal. CPFR contributions to both reactive and proactive response
models are enumerated. Lastly, need of change of supply chain network design is required and as
a result, recommendations are provided so that L’Oreal may further improvise upon its
strategies.

TABLE OF CONTENTS
Organization Overview Need for Change in Supply Network Design............................................1
Explaining Two Supply Network Configurations and Relevance of Models to Organization.......2
Adoption of Response Based Business Model................................................................................3
Highlighting Procurement Strategies and Recommendation of Strategies from Push Based to a
Pull-Based System...........................................................................................................................4
Adopting Collaborative Planning, Forecasting and Replenishment [CPFR] Concept....................5
Cross-Functional Supply Chain Drivers..........................................................................................7
Conclusion and Recommendations..................................................................................................9
References......................................................................................................................................10

Organization Overview Need for Change in Supply Network Design
L’Oreal is one of the largest cosmetics organizations being headquartered in Clichy,
France. Firm have developed various activities in the field by making focus on hair colour, skin
care, sun protection, perfume, make-up and personal care products. This means that company
have large diversified activities and all its products are centred to personal care. It was founded
in 1909 and firm serves worldwide customers. Moreover, firm have reputed subsidiaries such as
Lancôme, Maybelline, NYX Cosmetics and Garnier. On the other hand, financial health of
company is quite pleasing over the years. It earned net income of € 3.98 billion at the end of
2018. While, revenue stands out at €26.93 billion and operating income at €4.92 billion.
Apart from strong financial position, supply chain network design is of utmost
importance to company to attain improved profitability and enhanced customer satisfaction. It
implies to analyse varied policies and programs with a motive to attain the targets along with
long-term objectives in the best manner possible (Handfield et.al., 2015). Business objectives
must be defined and then scope must be provided by company. By this way, network design of
supply chain is made. L’Oreal has customer-centric supply chain network design which needs to
be further improvised to enhance overall design (Supply Chain of L'Oreal. 2019). There is a need
to change this because accelerated development is absent in L’Oreal supply chain. It is a need of
hour as global operations are becoming complex and it need to adopt accelerated development
path.
Furthermore, company produces around 7 billion cosmetics commodities across its 55
brands. It needs to adapt to enhance its supply chain so that it can produce more and sell more
eventually (Eskandarpour et.al, 2015). This will give firm with better prospect in the worldwide
market leading to accomplish improved customer base and thus, imparting satisfaction to them.
It needs to balance performance in terms of luxury craft, complexity, agility etc. for generating a
greater number of SKU made of more than 1500 raw material types. Thus, with enhancing
accelerated development with priority, business will be able to improvise its supply chain
network design in a better manner.
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Explaining Two Supply Network Configurations and Relevance of Models to
Organization
There are various supply network configurations such as continuous model, fast chain
model, efficient chain model, custom configured model, agile model and flexible model. It can
be assessed that each of the models can be adopted by companies in order to strengthen their
supply network configurations in the best way possible (Emmett and Crocker, 2016). However,
two supply network configurations which are in relevance to L’Oreal are listed below-
Efficient chain model-
The efficient chain model is best for L'Oreal which is present in competitive market of
world. End to end efficiency is needed to attain premium goal. In this model, there are many
manufactures, and consumers might not satisfy with the attained value from it. It is quite useful
for L’Oreal, as it has scheduled production based on estimated sales for length of production
cycle. Moreover, competition is based on cost of product i.e. price for customer. High rates of
asset utilization must be maintained by management in order to deliver goods to consumers
through this model (Macchion et.al, 2015). The supply chain model is about speeding up the
production by keeping down the costs so that value for customers may be proposed. Hence, this
model is much relevant to company which focuses on customer-centric goods in effective
manner.
Fast chain model-
It is another vital supply network configuration model that is actively adopted by firms in
today’s ever-changing industry. This model is ideal for producers manufacturing items that are
trendy with shorter life cycles (Talaei et.al, 2016). L’Oreal, which offers trendy personal care
products, is quite relevant to this model because customer’s demand changes very rapidly in
cosmetics industry. It is required that organization must change its products on frequent note and
required to opt out existing trend before the same trend ends (Brandenburg, 2015). This will
ensure that business produces only trendy items and no old stock is present which might go for
wastage. It can be evaluated that L'Oreal can effectively attain efficiency and efficacy by using
fast chain model to accomplish customer satisfaction according to their demands.
Hence, it can be summarized that above two supply network configuration models are
much relevant to L'Oreal and it should adopt any one of them as per its nature and current
requirements.
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Adoption of Response Based Business Model
The business model provides overall strategy of any business for which it strives to
accomplish goals in a better manner. In relation to this, Response based business model is a type
of model which tries to minimize its reliance on forecasts and estimations by effectively sharing
real-time or actual information along with the supply chain in effectual way (Cheng, Farooq and
Johansen, 2015). While, anticipatory model had its focus on expecting future by forecasting
demand with respect to response-based model of business. Furthermore, there are several factors
which L'Oreal should consider as it adopts response-based business model are evaluated as
under-
Adequate research-
It is one of the factors that must be considered by L'Oreal when it is adopting response-
based business model. It should ascertain other business models which can perform even better
than this model (Pop et.al, 2018). However, since, real-time information can be attained is one of
the useful feature of this new era model, it should be implemented keeping in mind that other
departments are well-connected with it. Thus, with proper implementation and market research,
business model can be adopted.
Organization structure-
The organizational structure is another important factor which should be kept in mind
while adopting response-based business model (Ibarra, Ganzarain and Igartua, 2018). This is
evident from the fact that change in business model impacts people at all levels. Top
management, middle and lower management changes and accordingly, roles and responsibilities
are to be assigned to them. Work for lower level employee’s changes as business model creates
real-time information along with supply chain. Hence, if roles are not allocated properly, then
business suffers a lot (Rydehell, Löfsten and Isaksson, 2018).
Governance structure-
Good performing firms like L'Oreal understands the potential weaknesses and strengths
of their governance and ownership structure in effective manner. It is required to ascertain
leadership and then engage employees through proper participation and thus, work according to
organizational structure. In the absence of good governance structure, rules, procedures and
information guidelines will not be followed and management would be a failure.
Workforce availability-
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In this digital era, vibrant workforce is required in all spheres of industry. It is required as
talented and technology savvy employees are productive resources for company. Since, L'Oreal
is involved in personal care products, actual information availability at right time is quite
necessary. It becomes critical to deploy workers who are highly efficient in offering quicker
value by adopting response-based business model (Jung, Chang and Kim, 2018). Hence, right
candidates should be hired and only after that, new business model should be implemented to
reap benefits out of it.
Hence, it can be summarized that above factors are quite vital in assessing firm’s position
so that it can initiate or adopt response-based business model in righteous manner. This will
provide good competitiveness to L'Oreal which is present in variety of markets and customer
demands are changing rapidly in cosmetics and beauty industry.
Highlighting Procurement Strategies and Recommendation of Strategies from
Push Based to a Pull-Based System
The procurement strategy is used to acquire necessary supplies from efficient vendors
who will deliver the goods on time also by abiding to terms of purchase made at the time of
contract. In relation to this, procurement strategies, which are transitioned from push based to
pull based system, are enumerated underneath-
Kanban-
Kanban is one of the useful procurement strategies which are pull-based system where
continuous improvement is accomplished by visualising the process. Firm can purchase raw
materials in accordance to visuals for managing work as it moves throughout the process.
Kanban visualises process and actual procurement process in effective manner (Christopher,
Mena and van Hoek, 2018). From this, it is signifying that business can effectively attain
efficiency by procuring required items according to its needs by following the visualizing
process with ease. This leads to save costs and enhances overall process.
Just in Time-
As the name suggests, Just in Time is used to procure or purchase raw materials when
actual need of the same arises. It is helpful for L’Oréal as it has variety of products that are made
with large number of materials. These chemicals have expiry date and many items in the stock
would lead to wastage of resources or cost of handling extra inventory would raise unexpectedly
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(Kumar, Basu and Avittathur, 2018). Hence, with a motive to eradicate this, Just in Time
procurement strategy is useful, and business will be able to attain desired stock in hand and thus,
necessary production can be done at the right time and in right place without unnecessary
spoilage.
Global Sourcing-
It is termed as procurement strategy in which goods or services are purchased across
geopolitical boundaries in effective manner. Global sourcing is aimed to exploit international
efficiencies in the delivery of products (Wu and Lu, 2018). L'Oreal can effectively attain
competitive edge through global sourcing as suppliers are ready to offer materials to the firm on
appropriate prices. Furthermore, to integrate buyer and seller relationship with L'Oreal is sense
of honour for vendors and as a result, global sourcing is much crucial procurement strategy for
enhancing supply chain.
Green Purchasing-
Green purchasing is newer concept but possess pull-based system because of eco-friendly
aspect is need of hour. It is termed as procurement of products or raw materials from the
suppliers having lesser effect on health of humans and environment with products serving same
purpose. This means that not buying goods which affect environment and instead, focusing on
green purchasing (Tang and Wei, 2018). L'Oreal being globally sound company should make
green purchasing so that harmful effects on society and ecosystem are reduced or minimized up
to a major extent. Hence, it can be said that business can avail benefits by using green purchasing
in effective manner for reaping better results.
Adopting Collaborative Planning, Forecasting and Replenishment [CPFR]
Concept
The adoption of CPFR in the business is quite helpful as with the help of it, supply chain
integration can be enhanced in a better manner by assisting and then supporting mutual practices
(Ge et.al, 2019). In relation to this, information is shared among suppliers and retailers which
assist in effective planning and then satisfying demand of customers by initiating supportive
system of information being shared (Behzadi et.al, 2018). This helps to cut down expenses on
merchandising, logistics, stock and transportation across business trading partners. L’Oréal can
accomplish CPFR for enhancing its reactive and proactive response models. The supply chain
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become more responsive and as a result, keeps all members of supply chain in relations with
demand of consumers in terms of volumes and commodities. It can be analysed that having end-
to-end communication, inventory levels across chain is minimized up to a great extent.
The trading partners can ascertain entire picture of supply chain which previously was
known by corporates only (Aggarwal and Srivastava, 2019). This means that trading partners or
suppliers of L'Oreal are constantly reviewing strategies and models being deployed by company.
The collaboration activity initiates with the planning phase and goes till replenishment phase. It
makes effective supply chain process through which the company can respond to several
situations and circumstance. This make L’Oreal more of proactive than that of reactive. It can be
analysed that reactive model is based on aftereffects of any situations in which cannot do
anything before happening of event. It is unknown to them. However, proactive based response
model is helpful as during supply chain, any contingency can be handled by making strategies
and overcoming them in a proactive manner.
In addition to this, L'Oreal can develop trust between partners where usefulness of
sharing information is known in effectual way. The key purpose of CPFR can be identified with
four collaboration activities. These are listed below-
Strategy and Planning-
The activity is used to establish ground rules and processes for engaging in collaborative
relationship (Choudhury et.al, 2018). Moreover, it determines product mix and then develops
event plans for better results. Event planning is required to enhance production level as per the
strategy made and supplies to be attained from trading partners.
Managing Demand and Supply-
As the name suggests, this activity is used for estimating demand of customers, then
orders are placed. Lastly, shipment requirements are forwarded to suppliers for smoothen trade
between them and company (Parast, Sabahi and Kamalahmadi, 2019).
Execution-
It is an activity in which orders are placed and shipments are ready and delivered to the
destination. After that, products are received and stocked in warehouse. Lastly, transactions of
sales are recorded with payments being done.
Analysis-
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This is the last activity of CPFR contributing in proactive approach of response-based
model of business. Planning and execution are being monitored in search of exceptions if any.
Results are carried out and key metrics are computed by carrying aggregate of results. The
outcomes are shared with partners and thus, plans made are modified for enhancing results.
It can be analysed that CPFR contributes to both reactive and proactive response models.
This is evident from the fact that business can form the relationship with the trading partners
being transparent in nature (Ivanov, 2018). This helps to maintain proactive approach as L'Oreal
in need of stock will effectively act proactively and then replenish the same. This will lead to
fulfilment of demand of customers as production of items will be done in right time and at right
place.
On the other hand, L'Oreal CPFR also contributes to reactive response model because it
focuses on past numbers in order to determine or forecast demand of customers for its products.
This leads to make desired level of production and thus, no wastage occurs. Further, cost of
handling unnecessary inventory is not made and hence, maximum production takes place at
minimum possible cost (Rydehell, Löfsten and Isaksson, 2018). Hence, it can be said that
L'Oreal will be able to produce more by initiating CPFR in supply chain management. Thus,
desirable results will be accomplished leading to improvised network.
Cross-Functional Supply Chain Drivers
There are various cross-functional drivers of supply chain. L'Oreal often ascertains such
drivers as per its business model so that maximum production can be attained with smoother
supply chain from raw materials in manufacturing till finished products at destination of
customers (Braunscheidel and Suresh, 2018). The cross-functional supply chain drivers with
reference of L'Oreal’s business model are enumerated below-
Pricing-
The pricing means in literal language cost of goods. If logistic firms levy high charge for
fast delivery and low charges for late delivery, then there are two aspects of customer demand.
When high cost is charged, efficiency-oriented customer demand for faster delivery and for late
delivery, responsiveness-oriented customer usually demands for late delivery. It involves two
approaches such as standard linear and strategy matrix approach (Morita and Machuca, 2018).
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The former approach follows company’s pricing objective, policy of L'Oreal such as it
followed skimming price policy, list price (cost based or demand based), discounts given on
occasions, adjustments and final price. However, strategy matrix approach follows objective of
business and competitive situation and thus, formulate pricing according to it (Ellram and
Murfield, 2019). Hence, it can be said that pricing is a key cross-functional supply chain drive
for L'Oreal which follows adequate pricing for its products which are well-structured in
comparison to rivals.
Information-
The information is another key supply chain driver used for assessing customer needs and
wants. With proper information, customer taste can be provided to supplier that leads to
responsiveness by supplier and efficiency. This is accomplished because supplier makes
estimation of demand of people and then only supplies desirable product. Here, L'Oreal makes
use of information by enabling Customer Relationship Management (CRM) system through
which long lasting relationship can be formed with consumers (Bienhaus and Haddud, 2018).
Needs and wants can be determined and then manufacturing customer-oriented products
often lead to fruitful results for L'Oreal. Furthermore, with the help of appropriate information at
right time and at right place, strategies can be developed to strengthen supply chain and as a
result, quicker production and deliveries could be made with ease (Thai and Jie, 2018). In
relation to this, by having strong hands on information, supply chain can be enhanced or
improvised in a manner being beneficial to enterprise leading to achieve common goals.
Sourcing-
Sourcing literally means to procure raw materials for manufacturing commodities. There
are more than four sourcing centres of L'Oreal across the world from where adequate raw
materials are sourced and production is made. For several years in a row, Sourcing Department
of L'Oreal has placed sustainable and responsible strategy with its suppliers present in the world.
The Sourcing teams possess specialisation by types of goods and services and serve as a link
with suppliers being spilt into six segments (Purchasing Domains of L'Oreal. 2019). They are
Raw Materials, Packaging Components, Point of sale & Marketing services, Industrial &
Property, Indirect and Contract Manufacturing. Thus, it can be said that procurement of high-
quality material is used for manufacturing customer-centric commodities by firm to lure its
customers.
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Conclusion and Recommendations
Conclusion
Hereby it is evident that supply chain and design at international level is of utmost
importance with a motive to transport products to customers on right time. L'Oreal has been
performing at a good pace and comes under top 25 supply chain leaders in the world. However,
need for supply chain network design has been proposed so that business may be ready to tackle
future situations in a better manner. Apart from it, supply chain models being followed by
L'Oreal are helpful in enhancing its supply chain network. Response based business model has
been evaluated which shows that company is quite responsive to change in demand and as a
result, fast chain model is used along with efficient business model.
Recommendations
Hereby it can be recommended following points to L'Oreal to further improvise its supply
chain network-
 Inventory management is one of the key components in enhancing supply chain. It is
required that business should strike correct balance between minimizing stock level and
customer demand. This will turn out to be better management of inventory.
 It is further recommended to L'Oreal to improve distribution network. With absence of
adequate distribution network, sales strategy and delivery tracking are affected up to a
major extent. This means that network should be well-structured and communicated in a
manner so that goods are made available at right time (Emmett and Crocker, 2016).
 It is recommended that segregating corporate and supply chain strategy will also work
out well to strengthen overall supply chain management. The business strategy includes
product innovation, quality of service etc. which should be segregated with supply chain
strategy (Thai and Jie, 2018). This will generate transparency among supply chain and
top management benefiting firm.
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