Business Case Avon

BUSINESS CASE AVON PROFILE: CALLING ON CUSTOMERS COST-EFFECTIVELY

Introduction

Avon is the world’s leading direct seller of beauty and related products, with $6.2 billion in annual revenue. In addition to its cosmetics, skin care products, fragrances, and personal care products, the company offers a wide range of gift items, including jewellery, lingerie, and fashion accessories. Avon sells to customers in 145 countries through 3.9 million independent sales representatives, providing an earnings opportunity to women throughout the world. Its Europe region (spanning Europe, the Middle East, and Africa) accounts for than $1.2 billion of Avon’s sales, with operations in 32 countries and more than 1 million sales representatives.

With a primary focus on marketing and sales, Avon had neglected its supply chain for a number of years, never viewing it as strategic lever. This presented acute problems for Avon Europe because the region’s strong growth threatened to overwhelm the supply chain organization.

Back in the 1980s, Avon Europe had branches in only six countries, each with a separate factory and warehouse supplying the local market. These branches operated independently, with separate information systems, no overall planning, and no share manufacturing, marketing, or distribution. On a small scale this worked quite well. Each entity could be very responsive to local needs. In the early 1990s, the company began globalizing its key brands and embarked on a strategy to modernize its image through the launch of new products, packaging, and ad campaigns –a strategy aimed at more and younger consumers.

Avon planned to double sales revenue from $500 million in 1996 to $1 billion in 2001 for the European region as a whole –growth fuelled in large part by dramatic inroads in Central and Eastern Europe. But the company realized that replicating its supply chain model in every new market would be expensive and unwieldy. The bottom line: Avon couldn’t achieve its aggressive growth target with its existing supply chain. Explains Bob Toth, executive vice president, “Ten years ago we operated country to country, with a very decentralized financial-holding-company model. You just can’t compete that way now, especially if you’re a fast-moving consumer-goods company”.

A growing business – A growing problems

The first problem was a fundamental mismatch between the company’s selling cycle and its supply chain cycle. In most European markets Avon begins a new sales campaign –complete with a new brochure, fresh product offerings, and promotions- every three weeks.

This short selling cycle is a cornerstone of Avon’s direct-sales model. By regularly offering new products and promotions, the company gives its sales representatives a reason to call on their customers more often, strengthening those relationships and driving sales.

A short selling cycle demands a flexible, responsive supply chain. Here, Avon fell short, especially as the company’s European operations grew larger. Avon’s factories manufactured everything to forecast and the shipped inventory to the country warehouse before the start of each three-week selling campaign. Inevitably, certain products would be big hits, and the branches would send rush orders back to the factories to make more inventory. However, it took an average of 12 weeks for products to cycle through Avon’s supply chain from sourcing to manufacturing to distribution out to the branches –far too long for the short selling cycle.

This timing mismatch led to on-the-fly solutions and enormous inefficiencies during the course of each sales campaign. Avon relied on the heroics of its people to meet customer needs –regardless of cost. This was viable when Avon Europe was relatively small. But as thee business grew, keeping up with the needs of the different markets and accurately forecasting demand for individual products became increasingly difficult, especially since Avon was entering new markets at a rate of two or three per year.

The rush orders destroyed manufacturing efficiency too. Since 40 to 50 percent of the items offered in any campaign sold more than expected, the factories were constantly interrupting their manufacturing schedules to switch from one product to another. Changeover costs were high –especially since the factories were set up for high-volume production.

Slow-selling products also were costly. In every selling cycle a number of products would sell less than forecast, son Avon had a growing amount of unsold merchandise. Avon’s inventory levels were high –as much as 150 days’ worth was typical- far too high for a three selling cycle. And most of this inventory consisted of unsold items. The capital tied up in inventory would only increase as Avon’s business expanded in Europe.

Language variants presented another growth-related problem. Avon bought pre-printed containers from its suppliers. With new markets came new languages and a growing number of print variants. Given its manufacture-to-forecast approach and the supplier’s lead times, Avon had to order a wide range of pre-printed containers well before it knew what its sales volumes actually would be in the different markets. This was becoming increasingly complex –and wasteful. Avon often would have demand in one country that couldn’t be filled because the only containers on hand were printed in another language.

Fixing these problems and transforming the supply chain would be an enormous undertaking, one that needed support and a big financial commitment from corporate management.

4. Preguntas

Se pide:

1. Elaborar el “AS IS” o Mapa de la Cadena de Suministro de AVON.

INTRODUCCIÓN

- En 1980 Avon Europa sólo tenía filiales en 6 países (cada una de ellas con una fábrica y almacén). Trabajaban independientemente (sin sistemas de información compartidos, planificaciones, marketing y distribución). Cada filial era responsable de satisfacer las necesidades de cada mercado.

- En 1990 Avon empieza a globalizarse  planea doblar sus ventas de $500M a $1000M y, por lo tanto, replicar su cadena de suministro en cada mercado europeo sería ineficiente y demasiado costoso.

PRINCIPAL PROBLEMA

- Desfase entre el ciclo de venta de Avon (3 semanas) y el ciclo de la cadena de suministro (12 semanas de media).

• La fábrica de Avon envía la mercancía a su respectivo almacén antes de que la campaña de venta de tres semanas empiece.

• La cadena de suministro de Avon (des de la fabricación hasta la distribución), de media, tarda 12 semanas.

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