The Industry Expert Perspective on Enabling Mass Customization in the Supply Chain
It’s a pleasure to offer perspectives and insights from Pierre Massicotte, an expert and consultant in supply chain and logistics management. Based in Montreal, Pierre carries a 35-year career in Operations, with 18 years in the medical industry as Director of Operations with Baxter Corporation, and 17 years in the cosmetic industry as Senior Vice President of Operations with L’Oréal Canada. We’re excited to provide Pierre’s perspectives in the following areas:
- Supply Chain Management
- Dealing With Customization
- Information Technology
We’ll start with supply chain management.
Supply Chain Management
Over the decades, the supply chain management function has evolved from simply delivering products to focusing on the reduction and optimization of total costs, managing customer requirements, and supporting business development in many companies. Once seen as a cost center, it is now viewed by many brands and manufacturers as a strategic element in the execution of business plans. As result, supply chain management teams have made a concerted effort to work closer with sales and marketing to gain a better understanding or retailer needs, develop initiatives which improve operational efficiency, and optimize sales.
Initiatives commonly abbreviated as CPFR (Collaborative Planning Forecasting Replenishment) or VMI (Vendor Managed Inventory) were created and have become common practices between manufacturers and retailers.
Pierre noted, “Brands are already very active when it comes to working closely with the retailer. In fact, often manufacturers are the ones pulling the trigger on what the next order should be. It’s that partnership with the retailer where they say: you know your business and your market better than we do, so let’s negotiate the parameters that we work within to best manage your objectives. The parameters often being: fill rate, in stock ratio, and dollars or days of inventory. Once the objectives are set, retailers say: here’s the POS (point of sale) data – have your people analyze that data and create the replenishment orders. With that information we can forecast the demand. The results are reviewed with the retailer on a monthly basis.”
Pierre added, “The way I look at it – and I think the way more supply chain managers do as well – is that our job in operations is not done until the product is available for the consumer on the retailer’s shelf. Even though we fill the replenishment order for the retailer, our job doesn’t end there. We want to be sure that the product makes it through all the distribution steps and is available on the shelf. In the last mile, sometime the last hundred feet are critical to succeed. We have to work closely with the retailer if we want it to work. On-shelf availability rates are the real measures we should be focusing on to maximize consumer satisfaction and to optimize sales.”
Closer relationships with retailer soon revealed another opportunity to improve operations efficiency and to maximize sales.
Product Launches and Promotional Activities
Product launches for new or improved products happen frequently in the cosmetic industry. In fact, 20-25% of the catalog is subject to review every year. Launches are supported by floor stand and counter top displays, with dedicated promotional material prepared by the marketing team. In addition, promotional packs are prepared for seasonal promotions, holidays, and specific retail programs. These activities create significant variation in demand and are most difficult to forecast. The operations team needs to be involved early in the planning process of these activities and follow up on the pack assembly, as well as the execution of the plan.
Pierre said, “Operations was always engaged in some level of pushback on those activities because we didn’t like the variability in their processes. Operations favored simplicity, not variety. The thinking was that variety undermined efficiency, and therefore negatively impacted cost. Operations wanted to offer the same packaging, product assortment and quantity for all the retailers at all stores. However, more and more, retailers wanted to differentiate themselves, which was impossible if everything in the marketplace is the same. Operation’s approach was looking less and less viable with each passing month and year.”
Pierre added, “It became very obvious that we needed more agility in operations. Managing customization and variety was necessary to help us achieve better results on the key parameters negotiated with the retailers and allow us to better support the business. We took that challenge to say okay, instead of pushing back, why don’t we look at creating more agility by using our co-packers? Maybe try to build on-demand, ship directly, and make the supply chain more flexible to meet the demand.”
However, without the right systems and processes in place, it looked like mission impossible!
Dealing with Customization
There was a very clear need for technology to support customization, but the requirements were not well understood early on.
Pierre said, “Our normal operation was focused on preparing and shipping full case quantity and our pick and pack orders. We were very good at that. However, for the display and pack assembly related to launches and promotional activities, we made the choice to work with co-packers. We did not want to change that method, but the planning and the tracking required to fulfill more customization was a real challenge. Obviously, we did not have the proper process and system to support our ambition. In fact, we didn’t even know what was required.”
For example, at the time, a typical launch for hair coloration products consisted of preparing approximately 1800 floor stand displays for shipment to the market. They were all the same size, with the same product assortment, and in the same quantity. The co-packer received the finished product, the promotional and packaging material, and all other components for the assembly. When all the material was received, the co-packer was ordered to release the production order to the shop floor. Then, once completed, they shipped the whole assembly back to our main finished-goods distribution center, where it was cross docked and shipped to the retailer.
Pierre said, “A few years ago, we implemented a new method with our co-packers, to ship the order directly to the retailers instead of bringing the completed production orders back to the main finished-goods distribution center, which created additional time lag and expenses, with no value added. We were able to orchestrate transportation digitally. We successfully saved costs, but it required much more administration and coordination to track and trace production and shipments. It was still a challenge to manage inventory and product flow. For the customization project, we needed the proper system in place, as we could not afford manual tracking on inventory, production, and shipments.”
One size did not fit all anymore. Adjustments on product assortment and quantity needed to be made for individual consumer markets without incurring more cost.
Pierre said, “For example, with a larger Asian population in British Columbia, the coloration assortment needed for the market could be very different than in Central Canada. Also, the Great Toronto Area stores could require more quantity of those SKUs than some stores in the remote area of Quebec or the Maritimes. Those adjustments represent greater variety. If we want to commit to customization, we need to look at all the requirements, current and future, and to select the proper process and system.”
As we have discussed, increased variety without appropriate systems and processes, undermines efficiency and drives up cost.
Pierre added, “The other aspect related to systems was to ask ourselves: if we were to become more agile, why not give a tool to the account managers so they can custom configure those displays or packs with their retailers? With pre-selected pack size options, several product/SKU (stock keeping unit) assortments, and quantity blocks, we could let them work with their retailers to create packs that fit the market. From that same tool, once linked to our ERP system, we could generate the bill of material to be used for cost evaluation, approval, procurement, planning, receiving, production, quality control, and shipping. We needed a tool to integrate with the process from display/pack creation-to market. The tool was to serve the needs of Sales Marketing, Operations, and Co-packers.”
Based on that vision, a search for a technological solution was the next step.
Pierre was in search of a solution that would make the complexity he faced much simpler. He discovered software from Nulogy Corporation, which addressed this specific business problems. Nulogy’s contract packaging software solution was able to:
- Maximize integration availability to connect to a brand customer’s ERP system for real-time quoting and planning
- Deliver real-time product and production information
- Forecast and deliver co-pack project timelines
- Manage the receiving function of a co-pack operation
- Monitor work-in-progress
- Manage the logistics of outbound and delivery more efficiently
The vast majority of co-packers have the proper systemic control for their operations. With a purpose-built technology solution like Nulogy’s, co-packers would be able to access and deliver real-time visibility of all processes, which would be a real win for both sides of the business equation. Process automation in various areas of a co-packer’s operation, such as inbound, production, outbound, would help co-packers ensure that they can deliver on-time, in-full for their customers.
Prior to innovative technology like Nulogy’s, it was nearly impossible to track inventory at the co-packer’s facility in a real-time fashion. All controls were manual. Most co-packers had no visibility on finished product and component arrival, and as a result, had limited execution control.
Pierre said, “With Nulogy, our co-packers could control inventory internally and we only had to do some audits and physical counts once in a while. The link to our system made a big difference because it allowed us to see all of our goods and where it was physically located at any time. It allowed us to hold the co-packer accountable, and at the same time, gave the co-packer the proper tool to hold themselves accountable to controlling inventory.”
Many manufacturers use SAP, one of the most powerful enterprise software applications in the global marketplace, to run their business. Yet, SAP and other ERPs are not set up to easily and efficiently accommodate the dynamic relationship between a brand and the co-packer. In addition, a co-packer doesn’t have the resources to invest millions of dollars in an enterprise-wide ERP system—it simply isn’t a good fit from a functionality or a total cost of ownership perspective.
As Pierre offers, “A technology that interacts with SAP and with the co-packer, which only requires limited functionality within the co-packing environment, makes a lot of sense. It wasn’t feasible to invite our co-packing partners to implement a full-blown SAP system.”
How did contract packagers fit into the plans to address this customization and personalized products? Pierre offered that when their co-packers adopted Nulogy, they would receive 3 features that were important:
- The first is simplified communication about inventory moving in and moving out, whether it’s for finished products, components, or finished assemblies.
- The second is the possibility of analyzing their cost and their pace of production and associated metrics so they would have insights they needed to easily manage their own businesses.
- The third is that the co-packers get a tool to accurately and efficiently manage their inventory.
Some of their co-packers had some sort of enterprise application for inventory management, however, most didn’t even have that. Many used Microsoft Excel and tools like that didn’t support collaboration needs. Pierre wanted to adopt something that was more robust and had the proper operation procedures in place for receiving the goods and shipping the goods.
What about adoption of the new technology and related change management issues?
Pierre offered, “Of course, for some of them, they were a little reluctant to jump into the project because they sensed that it would be a little bit like Big Brother watching over them. It can be unnerving to know that their business information would be available to us. However, after a short time, most co-packers reported very positive feedback.”
Once the co-packers saw the better way, the opportunity for the executive team at the co-pack organization to inquire: How can I get the other brands that I work with to adopt this technology?
Pierre responded, “If you’ve taken pain out of some of your business, why would you want to continue to suffer that pain with other customers? You wouldn’t. We didn’t want a co-packer to be overly dependent on us—they needed to build a strong, robust business with multiple brands like ours. As a co-packer becomes more efficient, they can offer a better price which is always going to be important to the brands they support.”
Pierre adds “When we did the negotiation with Nulogy, we negotiated the fees for us and the fees for the co-packer. We helped our co-packers in that transaction as well.”
Finally, we talked about compliance. In some cases, compliance requirements included re-labeling, lot management, and traceability. It is not only important, but it’s a part of the Canadian compliance requirements to be able to track that information live, as products are being re-labeled. Nulogy is helping its customers in this very important area with its technology.
“The value was real-time information,” says Pierre. This included:
- project planning and allocation
- inventory accuracy and inventory control
- production tracking,
- product flow management/pipeline visibility
- compliance with good business practices
“Of course, if you can improve on inventory management, you can improve procurement and total asset management. You can manage all of these things better because you have better tracking. You don’t need significant reserves and can reduce reserve inventory. That’s real savings.”
Pierre was able to see bottom line benefits of partnering with suppliers with Nulogy’s technology. He was able to have more visibility, collaboration, and insight into strategic partnership opportunities. It was a win-win on both the brand side and supplier side.
Pierre Massicotte is a consultant, expert in Supply Chain Management and Logistics. He is a former Senior Vice-President of Operations at L’Oréal Canada, leader of the cosmetic industry, a position in which he overseen all activities with regards to customer service, demand management, planning and procurement, inbound freight, customs and compliance, human resources, as well as all logistics activities. He was with L’Oréal for 17 years. Prior to that, he was in healthcare, with Baxter Corporation for 18 years, where he work as Director of Operations, Eastern Canada.
Pierre live in Montréal, Canada. He is a graduate of Montréal’s HEC with a degree in Business Management.
During his 35 years career he actively participates in a number of committees and work groups aimed at developing the functions and resources with regards to managing the supply chain.
Dave Gardner makes the complex simple. He is a speaker, blogger and author based in Silicon Valley. He’s been in the front row for the birth and evolution of Silicon Valley, the innovation capital of the world. He’s had his own consulting practice since 1992. His clients include large corporations such Cisco, Dell, Applied Materials, Fujifilm and a number of lesser-known start-ups and small and medium-sized businesses.
Dave has held management and senior management positions in Engineering, Manufacturing, Sales, Marketing, and Customer Service, and Product Management in a variety of high-tech industries, in the pharmaceutical and biotechnology industry, and in the fire/rescue vehicle industry. He holds a BA from San Jose State University and an MBA from Santa Clara University. He is a member of the Leadership Board for the College of Arts and Sciences at Santa Clara University.
Dave has been inducted into the Million Dollar Consulting® Hall of Fame. He is a member of the Society for the Advancement of Consulting (SAC). He is Board Approved by SAC in “Configurable Products and Services Strategy & Implementation.” He’s the author of Mass Customization: An Enterprise-Wide Business Strategy and soon to be published 101 Insights: Actionable Ideas for Business Growth and Strategy.