Strategic Supply Chain Management - Supply Chain Online

AVON PROFILE: Calling on Customers Cost-Effectively 93
switch from one product to another. Changeover costs were high—especially
since the factories were set up for high-volume production.
Slow-selling products also were costly. In every selling cycle a
number of products would sell less than forecast, so Avon had a growing
amount of unsold merchandise. Avon’s inventory levels were high—as
much as 150 days’ worth was typical—far too high for a three-week selling
cycle. And most of this inventory consisted of unsold items. The capital
tied up in inventory would only increase as Avon’s business expanded
in Europe.
Language variants presented another growth-related problem. Avon
bought preprinted containers from its suppliers. With new markets came
new languages and a growing number of print variants. Given its manufacture-to-forecast
approach and the suppliers’ lead times, Avon had to
order a wide range of preprinted containers well before it knew what its
sales volumes actually would be in the different markets. This was becoming
increasingly complex—and wasteful. Avon often would have demand
in one country that couldn’t be filled because the only containers on hand
were printed in another language.
Fixing these problems and transforming the supply chain would be
an enormous undertaking, one that needed support and a big financial
commitment from corporate management.
MAKING THE BUSINESS CASE AND MOVING FORWARD
It required a lengthy, detailed analysis to prove that Avon’s supply chain
wouldn’t be able to handle the projected growth of the business. Even
then, it took 18 months to build the business case and get executive buyin
to move forward with the far-reaching changes needed. Convincing the
organization to invest money that wouldn’t be recouped until the later
years of the transformation was a tough sell. In fact, the first two years
would result in a net loss. “This delayed payback was an uncomfortable
notion, especially given that Avon had never invested much in the supply
chain before and wanted quicker results,” explains Michael Watson, director
of Avon’s supply chain transformation. “It was very difficult getting
that initial momentum going.”
By the time Avon started the project, however, corporate buy-in was
absolute, and management had committed an extraordinary level of
resources. Notes Watson, “We took 45 of our best people in Europe out
of their existing positions and put them into the project full time for 18
months.” Removing these people from day-to-day operations was extremely