The beauty industry rakes in about $445 billion dollars a year, according to Forbes. Consumers spent almost six billion dollars last holiday season on contouring kits, lip stains, and color-matched foundations. With this annual boom, supply chain managers at cosmetic companies are challenged to meet the holiday demand.
Supply Chain Management for the Cosmetics Industry
The cosmetics industry is a great example of the move to a demand market that most supply chains are experiencing. Product development is completely driven by consumer demand and quickly changing trends. This drive is forcing faster production and fulfillment. Trends can change in minutes with a celebrity photo or video. With one Instagram post, reality star Kylie Jenner’s lip kits sold out in 10 minutes.
Rick Milligan, the director of supply chain solutions at Inmar, Inc. explains the celebrity effect. "When Jenner says she hates a product on social media, the company can't give it away…But when she says she loves a product, they can't make it fast enough," Milligan says. "For example, they had one nail polish shade that was hardly selling until Jenner tweeted about how much she loved it—then it sold out in two days."
The Challenges of a Beauty Supply Chain
Beauty supply chains face unique challenges. Cosmetics and skin care companies have a lot of product to source and move with three new product launches every year including summer, winter, and the holidays. Cosmetic supply chains source organic materials that require certain temperatures, care, and quick transportation. Their logistics include getting source materials to manufacturing facilities, delivering the finished product to retailers, and then, picking up products that didn’t sell before their expiration dates.
Another challenge for cosmetic supply chain managers is finding reliable sources that meet customer demands. Thanks to watchdog groups, environmental groups, and social media, customers are savvy about where their products are coming from and expect transparency from suppliers.
The Many Shades of Technology
Customers now demand that technology be part of their buying experience. This is good news for beauty supply chains. They can get real-time data on trends directly from customers using “try before you buy” technology. As noted in Euromonitor International, “From Sephora’s skin care IQ to Harrods’ Ioma machine and the Organic Pharmacy’s DNA test, consumers’ desire for customizing their skin care is stronger than in any other category.”
Beauty companies are offering customers the experience of trying on makeup and foundations through apps. Customers upload a selfie and can see their options in real time. All this data can go back to the supply chain.
Fast Delivery
Customers are pushing supply chains with their demand for same-day or next-day delivery. They see a product on social media where they watch and read reviews. Next, they try it on in the app. If it’s a go, they want to buy immediately and expect to use the product tomorrow.
The Price of Social Responsibility
Consumers also are demanding social responsibility from cosmetic companies. This adds pressure on supply chains to meet demands and be transparent. Some customers are choosing to pay more for products that market fair trade and ethical sourcing. They want to know that the ingredients are grown organically, workers are treated fairly, and that the packaging is recyclable.
Inner Beauty: Companies with Exemplary Supply Chains
Mary Kay is a prime example of what’s trending in the supply chain industry. The company is operating more efficiently thanks to digitizing its supply chain and process in 2012. This decreased its products' launch time by 30%. It also gave the company more visibility into how its products rate in different locations. Now, Mary Kay tailors its product lines by location. “We found that our customers in Asia, for example, had very different requirements for their skin care than our customers in Latin America or the United States,” says Deanna Fell, vice president of engineering and PMO at Mary Kay. “As part of our innovation strategy, we tailor products for different regions, and that has helped us meet market demands.” The company used Oracle’s Agile product lifecycle tools to help them focus on the products with the best ROI.
L’Oréal rates as one of the top supply chains in the beauty industry. Instead of focusing on technology upgrades, L’Oréal focuses on people and mindset. This beauty giant sells products in 130 countries with annual sales of 23 billion euros and employs 7,500 supply chain professionals globally. They hire local talent with a passion for beauty. Richard Markoff, L’Oréal’s Corporate Director of Supply Chain Standards describes the company’s philosophy. “The team for me is the most important thing. Our customers drive the design of our organization. L’Oréal’s organization shifts as customers morph... The more digital we are, the more information that people want on our products. The supply chain is integral to the business strategy.”
Be a Part of Something Beautiful
The cosmetics supply chain industry is growing and innovating. Like other global supply chains, it faces challenges. The industry demands leaders who can implement agile supply chain solutions and who understand the importance of sourcing and procurement. A Master’s in Supply Chain Management from Kettering University Online prepares you for a leadership role with some of the world’s most successful companies.
Kettering Online's Innovative Master's Degree in Supply Chain Management
The Master of Science in Supply Chain Management program combines traditional approaches to supply chain management with innovation and the current trends that are transforming the industry.
The entire Master’s in Supply Chain program is ten courses where students receive a practical framework in the foundations of supply chain management, financial management, and logistics. Kettering University Online has designed unique courses with practical applications students can apply immediately.
Sources
- inboundlogistics.com/cms/article/cosmetics-logistics-the-beauty-of-an-optimized-supply-chain/
- supplychainshaman.com/supply-chain-2/supply-chain-excellence/loreal-a-beautiful-supply-chain-2/
- capacityllc.com/blog/5-challenges-facing-your-cosmetics-supply-chain/
- cnbc.com/2016/12/07/makeup-is-seen-taking-over-holiday-beauty-sales.html
- inboundlogistics.com/cms/article/cosmetics-supply-chain-puts-its-best-face-forward/
- forbes.com/sites/oracle/2016/06/07/more-than-cosmetics-for-mary-kay-six-best-practices-for-digitizing-innovation/#4706ee6077ac
- blog.euromonitor.com/2015/06/four-ways-that-technology-is-changing-beauty.html
Things to look for when selecting a contract manufacturer for your beauty products
Private label vs. Contract manufacturing
For wannabe beauty entrepreneurs, approaching third party manufacturers is an important step when starting or growing your beauty business. When the time comes to approach manufacturers, there are typically two options to choose from; private label and contract manufacturing.
Private label
Private label refers to purchasing pre-existing, pre-made formulations that are ready to sell instantly. When purchasing private label goods, you are simply buying unbranded products that you can brand and sell as you wish.
This is a great option for new startups, as costs are low, there are low MOQs (minimum order quantities) and typically short lead times. However, you will have no control over the formulations and typically cannot request alterations.
Contract manufacturing
On the other hand, contract manufacturing allows you to work with a manufacturing company to create bespoke formulations that are unique to your brand.
However, bespoke formulations cost more money, require longer lead times and typically require larger minimum order quantities.
Questions to ask:
- What formulations do you have available for private label?
- What are the MOQs and lead time for private label goods?
- What are typical pricing ranges for contract manufacturing?
- What are the average MOQs and lead times for contract manufacturing?
Formula ownership
The contract manufacturing route is popular for entrepreneurs who are looking at creating bespoke formulations. Because both parties will have some involvement in developing, refining and testing of the final product - from pilot to final manufacturing scale - formulation ownership can quickly be a complex issue.
At no point should assumptions be made about formulation ownership, and it is best to address this issue prior to commencing any work and ensure terms and conditions of formulation ownership are put into writing.
Questions to ask:
- How do I retain ownership of the formulation?
- Is there a price reduction for sharing formulation ownership?
- Can you ensure the necessary paperwork that outlines the formulation ownership?
Budget
When dealing with contract manufacturers, there are many variables that can impact the overall price of manufacture.
When determining the total price of a formulation, it is common to use a BOM (bill of materials); a total list of all costs; including ingredients and packaging. So when it comes to setting your retail price, you can calculate the cost of goods sold (COGS), which includes the BOM, labour, shipping and any taxes.
Some of the factors that can impact the overall cost of a formulation include:
- Ingredient cost
- Minimum and maximum capacities
- Pilot and full-scale testing
- Final packaging costs
- Delivery
Asking a manufacturer to break down the costs of all variables will allow you to help determine what is necessary, and what is just nice to have within your budget constraints.
Questions to ask:
- What is the breakdown of costs?
- Does the budget include filling and packaging costs?
- Are there any R&D fees?
- What happens if the product doesn’t meet desired specifications?
- Does the cost include delivery of finished products?
Region and Global Reach of Production Facilities
It is likely that contract manufacturers that you approach will have additional manufacturing facilities, or the networks in place to facilitate manufacturing or distribution in different countries and continents.
Whilst this can be advantageous in the future, make sure to ask questions regarding potential issues with formulations and ingredients, and whether they use different equipment or processing methods.
If certification (discussed later) is important to you, then be sure to raise any questions and concerns up front.
Questions to ask:
- Can you manufacture my formulation in additional locations?
- Can you distribute finished products on my behalf?
- Can additional facilities produce products to the same specifications?
Minimum Order Quantity (MOQ)
'Minimum order quantity’ is the minimum number of units that must be purchased, per order.
The MOQ usually determines the minimum amount of product that a manufacturer needs to make for it to be worth their time and effort. The MOQ will usually correlate to the size of the facilities at their disposal, and will determine the minimum up-front cost required for production.
It is also a good idea to ask for a maximum order quantity too, to ensure that your manufacturer can accommodate any future orders you may require.
Questions to ask:
- What are minimum order quantities?
- Can I request samples? How much are they?
- What is the maximum order quantity?
Lead Time
Lead time refers to the time it will take between initiating an order and the completion date of the product. When it comes to cosmetic manufacturers, the lead time will depend on multiple factors, such as the following:
- Formulation development requirements
- Production capacity at manufacturer
- Raw material availability
- Order quantities
- Certifications - (see next section)
- Primary and secondary packaging and additional branding
Questions to ask:
- How long will it take from ordering to receiving goods?
- Are there likely to be any delays - from ingredients and/or packaging
Certifications
Many third parties will formulate specific certifications as required; FDA, GMP or COSMOS for example.
The reason for getting manufacturer certified products is for one of two reasons - ‘nice to have’ - such as certified organic - to create strong product benefit claims, or an absolute necessity - FDA and/or GMP - in order to legally sell products in your target market.
Do remember that certification can apply to both the method of manufacture AND ingredients, both of which can cause sharp price increases in your formulation.
Questions to ask:
- What are minimum order quantities?
- Can I request samples? How much are they?
- What is the maximum order quantity?
Formulation Capabilities
If you think about the typical range of beauty products on the market, you have a variety of formats - powders, liquids, gels, pellets, lotions, etc.
Each format requires a new set of skills and knowledge to be able to develop and manufacture each format to the desired standard.
As well as this, niche ingredients can also add complexity into the formulation process
Questions to ask:
- Can you manufacture [format type]?
- Can you manufacture with [ingredient name]?
Manufacturing Capabilities
Not all cosmetic and beauty manufacturers are the same. Like there are manufacturers that specialize in particular formats or ingredients, there are manufacturers that specialize in the equipment they have available.
For example, manufacturing with fine powders or volatile materials requires specialist equipment and strict formulation protocols. Make sure to check with your manufacturer about any issues they can foresee with your formulation ingredients or manufacturing method.
Questions to ask:
- What manufacturing equipment do you use?
- Is any specialist equipment required for production?
- What size vessels do you use, and what’s the maximum quantity you can produce?
- Are products filled, as well as manufactured?
- Who is in charge of overseeing production?
Breadth of Services
Manufacturing a formulation is just one part of the whole production process of any cosmetic or beauty products.
But you should consider additional services that contract manufacturers can offer; formulation development, raw material sourcing, pilot scale production, filling and packaging - primary and secondary.
Although these might not be services you require immediately, for future needs, it may make sense to outsource as many aspects of product development as possible, or get access to expert formulation chemists and process engineers.
Questions to ask:
- Can you offer primary and secondary packaging?
- Do you fill in the required packaging?
- Can you help develop future formulations?
- Do you have chemists and engineers that can help improve manufacturing?
- Can I speak to them to ask questions or for advice?
Summary
Finding a contract manufacturer is not an easy task and requires plenty of research and due diligence to find the perfect partner. Make the task easy for yourself by determining your exact requirements ahead of time and with a series of follow up questions to gauge the expertise and abilities of a contract manufacturer.
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