MBA Presentation MBA in International Management: ESCP Europe Business School Group Presentation: Supply Chain Management Case study analysis of L'Oréal's supply chain.

1. ESCP Europe MBA in International Management 2017 | Operations & Supply Chain Management | Group 3 1
L’Oréal Active Cosmetics Division
How do we rectify our service levels?

2. ESCP Europe MBA in International Management 2017 | Operations & Supply Chain Management | Group 3 2
Our current supply chain looks good in theory…
Supply Chain Demands
Supply Chain Execution
Factory Subsidiaries
International
Supply ChainTube Supplier
Financial FlowsFinancial Flows Financial Flows Financial Flows
Production Plan and MRP
3-month Lead Time
Consolidate Demand Demand Forecasting
Tubes Finished
Goods
Finished
Goods
Finished
Goods
Goods to be produced
Confirmation
Goods to be produced
Confirmation

3. ESCP Europe MBA in International Management 2017 | Operations & Supply Chain Management | Group 3 3
…but our service levels dropped last year and the decline
continues today
However:
• Service is low,
but not
catastrophic
• Service is also
a matter of
perception on
the part of
customers,
internal and
external

4. ESCP Europe MBA in International Management 2017 | Operations & Supply Chain Management | Group 3 4
Traditional KPIs indicate that each division of the supply chain is
doing well…
Factory Subsidiaries
International
Supply ChainTube Supplier
X% Achievement
Y% Adherence
35% Forecast
DeviationInventory Level
Late, but
transparent

5. What is the root cause of
the problem?

6. ESCP Europe MBA in International Management 2017 | Operations & Supply Chain Management | Group 3 6
The supply chain does not work together holistically
• They refuse to
understand that we
need 4 months lead
time -Tube supplier
• They tell us they can
meet demand but
then change their
production plan -
International Supply
Chain
• We’re receiving
requests from too
many people – Tube
supplier
Factory
• They always
increase their
demand (under-
forecast) -Factory
Subsidiaries
• They told us they
could count on
the shipment -
Subsidiaries
International
Supply Chain
• They should be
able to produce in
2 months –
Factory
• There are quality
issues -Factory
• There are late
deliveries -
Factory
Tube Supplier
The tube supplier is
unreasonable according
to the Factory
The factory is stubborn
and deceptive according to
the tube supplier and ISC
The ISC can’t be trusted by
the Subsidiaries
The subsidiaries cause
frustration for the
Factory

7. ESCP Europe MBA in International Management 2017 | Operations & Supply Chain Management | Group 3 7
In reality, our supply chain is operating differently than
we’ve planned
Supply Chain Demands
Supply Chain Execution
Factory Subsidiaries
International
Supply ChainTube Supplier
Financial FlowsFinancial Flows Financial Flows Financial Flows
Production Plan and MRP
4-month Lead Time
Restriction
Consolidate Demand Demand Forecasting
Tubes
2nd
Production
Plan Goods
Finished
Goods
Finished
Goods
1st Production Plan
Confirmation
1st Production Plan
Confirmation

8. ESCP Europe MBA in International Management 2017 | Operations & Supply Chain Management | Group 3 8
Each division’s individual KPIs are good, but they don’t
communicate with the full supply chain in mind
Supply Chain Demands
Supply Chain Execution
Factory Subsidiaries
International
Supply ChainTube Supplier
Financial FlowsFinancial Flows Financial Flows Financial Flows
Production Plan and MRP
3-month Lead Time
Consolidate Demand Demand Forecasting
Tubes
2nd
Production
Plan Goods
Finished
Goods
Finished
Goods
Goods to be produced
Confirmation
1st Production Plan
Confirmation

9. What can ACD operations
management do to overcome
the current issue?

10. ESCP Europe MBA in International Management 2017 | Operations & Supply Chain Management | Group 3 10
We need to get the whole supply chain to work together
• Adapt to the fact
that the tube
supplier takes 4
months
• Stop changing
the production
plan
• Assure only one
MRP coordinates
with tube
supplier
Factory
• Forecast
accurately (i.e.
16% increase of
4-month
forecast)
Subsidiaries
• Fixed by
correcting
factory behavior
• Share
live/current
stock levels with
factory and tube
supplier (rather
than keeping info
for themselves
and only
updating 2x per
year)
International
Supply Chain
• They are already
transparent with
the Factory
related to their
capacity of
production, but
they can improve
quality issues
and late
deliveries
Tube Supplier

11. ESCP Europe MBA in International Management 2017 | Operations & Supply Chain Management | Group 3 11
The Tube supplier can be more collaborative
• Inform formally the Factory of the change of 4 months (instead
of 3 months) in the supply of goods
• Take into consideration the sales forecast sent to the ISC in
order to plan the production for the next year and meet the
increase of demand of the subsidiaries (live communication
between the subsidiaries and the tube supplier)
Tube supplier
The Tube Supplier should
have access at the sales
forecast sent by
Subsidiaries to ISC and
adapt the production plan
for the year

12. ESCP Europe MBA in International Management 2017 | Operations & Supply Chain Management | Group 3 12
The Factory can be more collaborative
• Change the production plan taking into consideration 4 months
of lead time for the tube supplier
• Stop changing the production plan
• Assure that only one MRP coordinates with tube supplier (Fred
isn’t a good fit) to avoid lack of information or
misunderstandings
Factory
The Factory should not
allow anymore the change
in the production plan
once it has been formally
communicated to the ISC

13. ESCP Europe MBA in International Management 2017 | Operations & Supply Chain Management | Group 3 13
The ISC can be more collaborative
• Correct factory behavior
• Share live/current stock levels with factory and tube supplier
(rather than keeping information for themselves and only
updating 2x per year)
• With an increase of demand the safety stock of class A
products could be considered too low (88% of class A products
record a lead time from 0 to 2 months and a coverage from 0
to 15 days, and 43% records 0 safety stock)
• Consideration for a second source (2nd supplier for tubes) in
terms of cost opportunity
International Supply Chain
The ISC should consider an
increase of the safety
stock for class A products
and the number of
updates per year and the
cost opportunity of a 2nd
sourceSAFETY STOCK (in days of cover) LT=0 LT=1 LT=2 LT=3
0 days 37 39 49 2
0 - 15 days 3 74 54 7
16 - 30 days 14 7 1
31 - 60 days 2 3
Total 40 129 113 10
N. SKUs of Class A products

14. ESCP Europe MBA in International Management 2017 | Operations & Supply Chain Management | Group 3 14
The Subsidiaries can be more collaborative
• Forecast accurately (i.e. 16% increase of 4-month forecast)
Subsidiaries
June Year Y July Year Y August Year Y September Year Y October Year Y November Year Y December Year Y January Year Y+1 February Y+1 March Y+1 April Y+1 May Y+1 June Y+1 July Y+1
Forecast end May Year Y 13205 10759 9859 11596 10484 9286 8287 16232 12406 12842 8566 6839 0 170
Forecast end June Year Y 12042 9733 12121 10569 9485 8476 15710 16845 14721 9912 8609 7842 251
Forecast end July Year Y 11899 12258 10386 9966 9915 17382 18160 13362 10681 9220 8591 6458
Forecast end August Year Y 13179 10340 10445 10780 17976 18640 13979 11493 9731 9383 7273
Forecast end September Year Y 11997 10763 11131 19799 18365 14356 12594 10660 10271 9100
Forecast end October Year Y 12725 10692 18366 18095 15269 13694 11000 10533 10123
Actually Shipped 11337 11043 9839 11944 9833 10589
Diff last forecast vs actual -14% -8% -17% -9% -18% -17%
Diff 4 months vs actual 3% -7% 6% 26% 17% 7% 4% 38% 28% 34% 3933%
y = 614,51x + 8294,2
y = 595,86x + 7794,7
y = 672,31x + 15224
y = 956,71x + 13737
y = 333,06x + 12922
y = 985,66x + 7706,9
y = 784,83x + 6596,3
0
5000
10000
15000
20000
25000
0 1 2 3 4 5 6 7
November Year Y
December Year Y
January Year Y+1
February Y+1
March Y+1
April Y+1
May Y+1
Linear (November Year Y)
Linear (November Year Y)
Linear (December Year Y)
Linear (January Year Y+1)
Linear (February Y+1)
Linear (March Y+1)
Linear (April Y+1)
Linear (April Y+1)
Linear (May Y+1)
Linear (May Y+1)
The subsidiaries should
decrease the buffer of 35%
to an average of 16% of
deviation rate for the sales
forecast

15. ESCP Europe MBA in International Management 2017 | Operations & Supply Chain Management | Group 3 15
Live information and end to end collaboration [1/2]
Subsidiary
A
Subsidiary
B
Subsidiary
…
ISC
Consolidation
of demand
Tube Supplier
Factory
ISC
Demand
consolidated
Subsidiary
A
Subsidiary
B
Subsidiary
…
Integrated System

16. ESCP Europe MBA in International Management 2017 | Operations & Supply Chain Management | Group 3 16
Live information and end to end collaboration [2/2]
Supply Chain Demands
Supply Chain
Execution
Integrated System
Each actor would work on
the same integrated system
which would allow:
 Complete transparency
 In time input and output
of information
 End to end collaboration
 Elimination of silos
departments
 Access to the same type
of information for all the
actors involved

17. ESCP Europe MBA in International Management 2017 | Operations & Supply Chain Management | Group 3 17
Together we win!
 Discuss with the supplier the results of forecast for
more involvement
 This would result better planning of their own
production and reserved capacity
 L’Oréal will assure and commit also to utilize reserve
capacity
 Common and correlated set of KPI shared by all the
actors along the supply chain
 One set of norms and standards
 Upstream and downstream collaboration between all
the partners
 Elimination of silos departments

18. ESCP Europe MBA in International Management 2017 | Operations & Supply Chain Management | Group 3 18
The current L’Oréal Active Cosmetic Division supply chain looks good in theory,
but still, service levels have continued on a 2-year downward trend. All
traditional KPIs indicate that the different supply chain groups are doing well
What is the root cause of the problem?
The supply chain does not work together holistically
• The tube supplier is blamed by the factory
• The factory is blamed by the supplier and ISC
• The ISC is blamed by the subsidiaries
• The Subsidiaries are blamed by the factory
What can ACD operations management do to overcome the current
issue?
We need to get the whole supply chain to work together
• The tube supplier can be more collaborative
• The factory can be more collaborative
• The ISC can be more collaborative
• The subsidiaries can be more collaborative
In conclusion

19. ESCP Europe MBA in International Management 2017 | Operations & Supply Chain Management | Group 3 19
Let’s get to work, together!