Elizabeth Arden Executing Global Supply Chain Re-Engineering
SCHM 3301 Final Presentation |Ahsan Altaf, Shweta Godse, Abhinav Jhaveri | Jonathan Chandless, Lawrence Lai, Marcus Williams| Williams | | Ali Croteau, Juddy Yunkyung June, Jackie Kenny |
Part 1. I.
Turnkey Strategy Supply Chain Re-engineering
Supplier Consolidation
II.
Organizational Restructu Restructuring ring
III.
Monetary Impact of Turnkey Implementation
Part 2. IV.
Elizabeth Arden’s Solution
Supplier Consolidation Ahsan Altaf, Shweta Godse & Abhinav Jhaveri
I.
Supplier Consolidation ●
● ● ●
3 Suppliers for Suppliers for each part of the a product ○ Rapid changes in Industry ○ Have back up suppliers Primary supplier = best investment to volume return ○ Ensure 65% of total supplies come from the top supplier Suppliers must adhere to Global Supplier Compliance Principal Emphasis on: ○ Location, Price performance, Quality, and Inventory & Stock Holding support
Geography-Based Supplier Consolidation ● ● ●
At Least 57% of the revenue of the company comes from North America Select suppliers in close vicinity to NJ ○ Reduce logistics costs Third party manufacturing facility in Europe - Closeby Distribution and logistics Beville, France to get goods across Europe
Potential Risks of Supplier Consolidation Supplier Inflexibility – large – large suppliers = risk losing the personal touch -
Ensure Ensu re commi commitment tment from supp suppliers liers:: respon responsive, sive, flexi flexible, ble, & go the extra mile
No such thing as a ‘One-Stop-Shop’ – could be difficult to find a single supplier -
Supp Su ppli lier erss will will out outso sour urce ce to to thir thirdd-pa part rtie iess
-
Veri Ve rify fy whe wheth ther er all all job jobss will will be be done done inin-ho hous use e -
To min minim imis ise e incu incurr rrin ing g any any thir thirdd-pa part rtyy cost costss
Vendor Lock-in – pitfalls of vendor lock-in -
Poss Po ssib ibly ly sub subst stan anti tial al swi switc tchi hing ng co cost sts. s.
Supplier Consolidation Considerations - Mitigating Risks Soft Costs
Potential intangible cost efficiencies Accounting Vendor management Inventory Purchasing Info amalgamation
Product Capability
Widest possible product & service offerings from suppliers Expertise & knowledge required
Proven Ability
Suppliers within the same industry Proven reliability & respect from competitors
Control & Visibility
Service & Delivery
Single-sourcing
#1 Priority = Service Level
Monitor product usage Cost reduction suggestions
Supplier with logistics & warehousing capabilities
Re-designing Contracts & Relationships ● ● ● ● ● ●
No long-term or exclusive contracts Individual purchase orders are made to independent suppliers, Elizabeth Arden has to assume responsibility of orchestrating a large porting of the product completion process Outsource contract manufacturing manufacturing to strategic partners, third party vendors and component suppliers Write up new contracts that will compensate based on meeting performance expectations Incentives with bonus’ to exceed quality expectations Contract out to established 3rd party vendors and component suppliers so EA can focus on core competency
Organizational Restructuring Jonathan Chandless, Lawrence Lai & Marcus Williams
II.
Purchasing Process Current Situation: Widespread Situation: Widespread individual purchasing from many firms with over 23 different collections (A collection can have anywhere from 2 - 30+ different product lines within it) Solution: Consolidate but include grassroots level employees in the purchasing process ● Reduces overall time spent on purchasing ● Lowers EA’s need to handle all of the product completement process ● Increased ability to seek out producers and purchasing power ● Maintains active worker involvement to ensure accurate purchasing decisions
Organization Before
Organization After
Forecasting Organization Current Situation: Short term oriented division level forecasting Solution: Centralize large scale purchasing decisions towards longer term goals Solution: Centralize ● Increases company-wide purchasing power ● Allows for a broad forecast that analyzes decisions on a larger scale ● Reduces amount of time spent on forecasting ● More accurate long term forecasting of broad trends
Inventory Management Organization Current Situation: High Situation: High levels of customization, slow moving SKU’s and long lead times are resulting in extremely large inventory levels Solution: ERP system for inventory management to provide a competitive edge with
abilities to plan effectively, execute predictably with customers and minimize labor costs and errors associated with manual reconciliation ● Properly plan and replenish orders ● Leads to fewer transaction and better inventory accuracy ● Allows ability to react quickly to surplus inventory ● Categorize inventory to better analyze assumptions
ABC analysis results
Increase customization of products Current Situation: The Situation: The company must achieve a more “customer oriented” approach to the organizational design to align more with the “Turn Key” project Solution: Increase customization to offer more personalized products that meet each individual's distinct distinct needs. This will done by through curation or “ assembling” service products together into a unique whole.
Aggregate data will be used to collect information about consumers. Then a price analysis will be conducted to determine how much consumers consumers are willing to pay.
Monetary Impact of Turnkey Implementation Ali Croteau, Juddy Yunkyung June & Jackie Kenny
III.
Current Financial Situation - Q2 2008 Financial analysis of Elizabeth Arden after Pirard’s initial changes.
Net Sales Current Ratio Shareholder Equity ROE P/E Ratio
2007
2008
2009
$1, 127, 476
$1, 141, 075
$1, 070, 225
1.81x
1.80x
1.93x
$320, 927, 000
$336, 601, 000
$336, 778, 000
12.47%
6.05%
(1.83)%
18.66
23.35
0.00
Pirard joins November 2007
Time of Case Study June 2008
Preliminary Effects After initial changes
Supplier Consolidation Benefits Soft Cost Savings
Hard Cost Savings
Reduced noncompliance
Reduced purchasing costs
Improved service level
Reduced headcount
Increased stakeholding satisfaction
Leverage consolidated spend: Lower Prices
Room for innovation: budget & ready information
Reduced procurement & supply management costs
1. Reduced Purchasing Cost - Calculating the Hard Savings RFP / competitive bid process Contracts (procurement & legal) Purchase orders Invoicing Supplier management Insurance W-9 Processing MSDS / Safety
Savings for Elizabeth Arden Direct Spend
Bottom 25%
$410 M
vs.
$380 M
Indirect & Materials Spend
$1,406,000
-3.85%
$13,528,000 $18,050,000 Bottom 50%
-4.22%
Upper 50%
-7.78%
Upper 25%
-12.53%
2. Reduced Management Costs - Procurement & Supplier Sourcing a supplier: Labor Outsourcing Technology Overhead
$700 -$1,400 internal costs for each supplier
Savings from Organizational Restructuring Savings from Inventory Consolidation
2006
$269,270,000
2007
$380,232,000
$110,962,000
2008
$408,563,000
$28,33 ,331,00 ,000
2009
$31 318 8,5 ,53 35,0 ,00 00
($9 $90 0,0 ,02 28,0 ,00 00)
Slowed Increase in Annual Operating Expenses 2006
$335,815,000
2007
$387,313,000
$51,498,000
2008
$417,088,000
$29,775,000
2009
$427 236 000
$10 148 000
Savings from Organizational Restructuring Reduction in Size of Supplier Base
Recommendations for Further Profit Maximization Focus on forecasting ●
Sales, costs, demand, inventory needs, etc.
Cut waste from the supply chain ● ● ●
Products that are under-performing in the market Suppliers that aren’t providing quality that meets the cost Shutdown warehouses and distribution centers that are under-utilized
Elizabeth Arden’s Solution What actually happened - then & now.
IV
Organizational Structure Under Revlon June 2016 Elizabeth Arden acquired by Revlon ●
●
Past failures in Elizabeth Ardern’s Supply Chain ○
Product-level purchasing complexity
○
Increased Supply chain overhead cost
○
“MICROBEAD” brand discontinuation
Revlon’s Competitive Advantage ■
NETAPP: Advanced SKU Database
■
Over $65 million invested in CSR
■
Centralized Purchasing Strategy
SYNERGY IN DISTRIBUTION NETWORKS
“Revlon’s acquisition of Arden creates a beauty company that operates across the mass and prestige spectrums, with a larger, global stage.”- Revlon Spokeswoman
Financial Analysis of Elizabeth Arden’s Strategies Financial changes after effects of turnkey fully realized: 2011
2012
2013
2014
2015
2016
Net Sales
$1, 175, 500
$1, 238, 273
$1, 344, 523
$1, 164, 304
$971, 098
$ 966, 733
Current Ratio
3.35
2.24
2.24
2.23
1.96
1.59
Shareholder Equity
$417,7 $417,765, 65,000 000
$481,7 $481,727, 27,000 000
$515,2 $515,282, 82,000 000
$370,9 $370,989, 89,000 000
$132,3 $132,399, 99,000 000
$59,87 $59,876,0 6,000 00
ROE
10.64%
12.77%
8.17%
(32.89)%
(97.87)%
(77.48)%
P/E Ratio
20.59
20.21
33.86
0.00
0.00
0.00
Additional Information
VI.
Case Assumptions Inventory for 2006 = $269,270 (not $569,270 - error in case study) Proportional Proportion al costs & savings to supplier and employee numbers -
Scale Scal e econom economies ies / learni learning ng curv curves es were were not cons consider idered ed in in the the calcul calculation ationss
Availability of Q2 2008 financial statements from Elizabeth Arden -
To quan quantif tifyy visib visible le impa impact ct of of Pirar Pirard’s d’s ini initia tiall chang changes es
Financial Overview: Before & After Turnkey
Supplier Consolidation Savings Annual contracting cost per supplier = (Total current year costs of staff contracting with suppliers / Total number of suppliers contracted with during current year) + (Total current year depreciation and maintenance maintenan ce costs for supporting systems / Total number of suppliers contracted with during current year)
Annual invoicing cost per supplier = (Total current years costs of accounts payable staff responsible for supplier payments / Total number of invoices paid for current year) * (Total number of invoices paid for current year / Total number of suppliers with spend for current year)) + (Total current year depreciation and maintenance costs for supporting systems / Total number of suppliers with spend for current year)
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