Detailed Abstract On Cosmetics Logistics

Global Cosmetics Industry

The cosmetics industry represents one of the most profitable and fast growing market segments in the United States in the past 50 years with cumulative sales of over $32 billion in 2005. The top players in the industry are L'Oreal followed by Procter & Gamble, Unilever, Shiseido, Johnson & Johnson, Avon, Revlon, Estee Lauder, Coty Inc, and Elizabeth Arden. The industry product categories are identified as cosmetics, hair care, skin care, sun care and perfume, which are developed, marketed and manufactured by powerhouses such as L'Oreal.

The five trends affecting the logistics operations of the cosmetics industry are centralization of distribution, innovation in packaging, evolution of new distribution channels targeted at men, search for suppliers of organic ingredients and information technology. The trend of centralized distribution is visible mostly in Europe where companies are consolidating distribution centers and warehouses to achieve increased efficiency. Innovation in packaging has allowed for better tracking of shipments and reduction in waste. Men now represent an emerging market; cosmetics companies will need to explore new distribution channels to take advantage of this. A market trend towards organic products has affected the way large cosmetics companies are securing suppliers of necessary ingredients. Information technology contributes to overall accuracy of forecasts, inventory tracking and loss prevention on the retail level.

Centralization of Distribution

The trend of centralized distribution is visible mostly in Europe where companies are consolidating distribution centers and warehouses to achieve increased efficiency. While centralization is still in progress, slowly consolidating distribution centers results in a decrease in total physical inventory, a reduction in backorders, improved delivery reliability, improved stock availability, and the standardization of inventory procedures. These characteristics are extremely important to the cosmetics industry because it helps manage and control finished products. Decentralization is great for products that need customization and fast delivery, but the cosmetics industry does not put a lot of weight on these two characteristics because they are in a commodity market. Consolidating distribution centers also lead to cost-savings. In such a saturated market, this is a huge advantage (Rodriguez).

The trend towards centralization in the cosmetics industry covers both managerial and operational needs, beginning with the delivery of the merchandise and their storage, and ending with the order execution and their delivery to the customers. The delivered merchandise comes from various plants abroad, suppliers, products returned by customers, third party warehouses, etc. When the merchandise arrive, and after they have been checked quantitatively and accepted, labels are printed with the ID's of the pallets and put on the products. Next, the bar code of the pallet labels are scanned by the terminal at the entrance, which update the IT system automatically in real time as far as the quantity, the lot, production date, and date of entry. At the same time, storage orders are created for the imported pallets. In order to receive the delivered merchandise and to place them on the shelves, the storage system uses routing algorithms, aimed at minimizing traveling time and the time needed for storage. This is determined by delivery dates of the orders to customers, urgent orders, local orders, and must take into account limitations such as available transportation, volume and weight of orders, etc. The consolidation of distribution centers allows for more control and management of products--this is highly valued in the cosmetics industry (Theodoropoulos).

Innovation in Packaging/Reduction in Waste

A growing trend in the cosmetics industry is cutting expenses to create more profit. A way to do this is to create efficiency in distribution systems. This includes innovation in packaging to foster better tracking of products throughout the supply chain as well as reduction in waste, particularly as related to reverse supply chains.

In the process of moving from raw material to getting finished goods to customers, products move around quite a bit. RFID tags use wireless signals and small devices attached to each product. The information is stored and displayed in a convenient location. This technology allows for more effective tracking of products as they move throughout the supply chain, resulting in fewer lost goods and better security (Prance). Tracking products will also allow the company to see how many components and products are wasted. More information about their supply chains will allow companies to make more improvements to their logistics systems.

Goods worth over $100 billion are returned to retailers in the United States annually. In fact, according to Devangshu Dutta, director of a supply chain solutions company, "nearly 20% of everything that is sold in America is returned" (Roy). In the past, companies would throw out most of these products. Now companies are beginning to realize the large losses they suffer because of these returned products. With reverse supply chains, companies can recycle, refurbish, or reuse products or components to save millions. Estee Lauder used to throw out almost $60 million worth of its products every year; after implementing reverse supply chain, the company has lowered its amount of destroyed products by almost half.

New Distribution Channels for Men's Cosmetics

One current trend in the cosmetics industry is the growing interest in beauty and cosmetic products for men. This new trend requires new distribution channels to deliver these products to men. The distribution of cosmetic products to men allows for various options of distribution because, unlike women, men do not necessarily purchase their own products. More than half of men buy their own products, while approximately a quarter leave the purchase of the goods to another member of the household with instructions of what to purchase, and a fifth leave the purchase and decision-making to another household member ("Men's Grooming").

One approach of distribution of these products to the large amount of men who buy their own products has been to sell products in stores that are typically considered environments directed towards more masculine interests. A certain type of hand cream for men is sold at hardware and home improvement stores to appeal to men within their traditionally masculine environment (Pitman). This option of distribution complicates