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Elizabeth Arden

Executing Global Supply Chain Re-Engineering

SCHM 3301 Final Presentation


|Ahsan Altaf, Shweta Godse, Abhinav Jhaveri | Jonathan Chandless, Lawrence Lai, Marcus Williams|
| Ali Croteau, Juddy Yunkyung June, Jackie Kenny |
Part 1.

I. Supplier Consolidation

Turnkey Strategy
II. Organizational Restructuring
III. Monetary Impact of Turnkey
Implementation

Supply Chain Re-engineering Part 2.


IV. Elizabeth Ardens Solution
Supplier
Consolidation
Ahsan Altaf, Shweta Godse & Abhinav Jhaveri

I.
Supplier Consolidation

3 Suppliers for each part of the a product


Rapid changes in Industry
Have back up suppliers
Primary supplier = best investment to volume return
Ensure 65% of total supplies come from the top supplier
Suppliers must adhere to Global Supplier Compliance Principal
Emphasis on:
Location, Price performance, Quality, and Inventory & Stock Holding support
Geography-Based Supplier Consolidation

At Least 57% of the revenue of the company comes from North America
Select suppliers in close vicinity to NJ
Reduce logistics costs
Third party manufacturing facility in Europe - Closeby Distribution and logistics Beville,
France to get goods across Europe
Potential Risks of Supplier Consolidation

Supplier Inflexibility large suppliers = risk losing the personal touch


- Ensure commitment from suppliers: responsive, flexible, & go the extra mile

No such thing as a One-Stop-Shop could be difficult to find a single supplier


- Suppliers will outsource to third-parties
- Verify whether all jobs will be done in-house
- To minimise incurring any third-party costs

Vendor Lock-in pitfalls of vendor lock-in


- Possibly substantial switching costs.
Supplier Consolidation Considerations - Mitigating Risks

Product Control & Service &


Soft Costs Proven Ability
Capability Visibility Delivery

Potential intangible
Widest possible #1 Priority = Service
cost efficiencies Suppliers within the Single-sourcing
product & service Level
same industry
offerings from
Accounting Monitor product
suppliers Supplier with
Vendor management Proven reliability & usage
logistics &
Inventory respect from Cost reduction
Expertise & warehousing
Purchasing competitors suggestions
knowledge required capabilities
Info amalgamation
Re-designing Contracts & Relationships

No long-term or exclusive contracts


Individual purchase orders are made to independent suppliers, Elizabeth Arden has to
assume responsibility of orchestrating a large porting of the product completion process
Outsource contract manufacturing to strategic partners, third party vendors and component
suppliers
Write up new contracts that will compensate based on meeting performance expectations
Incentives with bonus to exceed quality expectations
Contract out to established 3rd party vendors and component suppliers so EA can focus on
core competency
Organizational
Restructuring
Jonathan Chandless, Lawrence Lai & Marcus Williams

II.
Purchasing Process

Current Situation: Widespread individual purchasing from many firms with over 23 different
collections (A collection can have anywhere from 2 - 30+ different product lines within it)

Solution: Consolidate but include grassroots level employees in the purchasing process
Reduces overall time spent on purchasing
Lowers EAs need to handle all of the product completement process
Increased ability to seek out producers and purchasing power
Maintains active worker involvement to ensure accurate purchasing decisions
Organization Before
Organization After
Forecasting Organization
Current Situation: Short term oriented division level forecasting

Solution: Centralize large scale purchasing decisions towards longer term goals
Increases company-wide purchasing power
Allows for a broad forecast that analyzes decisions on a larger scale
Reduces amount of time spent on forecasting
More accurate long term forecasting of broad trends
Inventory Management Organization
Current Situation: High levels of customization, slow moving SKUs and long lead times
are resulting in extremely large inventory levels

Solution: ERP system for inventory management to provide a competitive edge with
abilities to plan effectively, execute predictably with customers and minimize labor
costs and errors associated with manual reconciliation
Properly plan and replenish orders
Leads to fewer transaction and better inventory accuracy
Allows ability to react quickly to surplus inventory
Categorize inventory to better analyze assumptions
ABC analysis results
Increase customization of products
Current Situation: The company must achieve a Aggregate data will be used to collect
more customer oriented approach to the information about consumers. Then a price
organizational design to align more with the analysis will be conducted to determine how
much consumers are willing to pay.
Turn Key project

Solution: Increase customization to offer more


personalized products that meet each
individual's distinct needs. This will done by
through curation or assembling service
products together into a unique whole.
Monetary Impact
of Turnkey Implementation
Ali Croteau, Juddy Yunkyung June & Jackie Kenny

III.
Current Financial Situation - Q2 2008
Financial analysis of Elizabeth Arden after Pirards initial changes.

2007 2008 2009

Net Sales $1, 127, 476 $1, 141, 075 $1, 070, 225

Current Ratio 1.81x 1.80x 1.93x

Shareholder Equity $320, 927, 000 $336, 601, 000 $336, 778, 000

ROE 12.47% 6.05% (1.83)%

P/E Ratio 18.66 23.35 0.00

Pirard joins Time of Case Study Preliminary Effects


November 2007 June 2008 After initial changes
Supplier Consolidation Benefits
Soft Cost Savings Hard Cost Savings

Reduced noncompliance Reduced purchasing costs

Improved service level Reduced headcount

Leverage consolidated spend:


Increased stakeholding satisfaction
Lower Prices

Room for innovation: Reduced procurement & supply management


budget & ready information costs
1. Reduced Purchasing Cost - Calculating the Hard Savings
RFP / competitive bid
process

Contracts
(procurement & legal)

Purchase orders

Invoicing

Supplier management

Insurance

W-9 Processing

MSDS / Safety
compliance
Savings for Elizabeth Arden
Direct Spend $410 M vs. $380 M Indirect & Materials Spend

Bottom 25%
$1,406,000

-3.85% $13,528,000
$18,050,000
Bottom 50%

Upper 50%
-4.22% Upper 25%

-7.78%
-12.53%
2. Reduced Management Costs - Procurement & Supplier
Sourcing a supplier:

Labor

Outsourcing

Technology

Overhead

$700 -$1,400
internal costs for each supplier
Savings from Organizational Restructuring
Savings from Inventory Consolidation

2006 $269,270,000

2007 $380,232,000 $110,962,000

2008 $408,563,000 $28,331,000

2009 $318,535,000 ($90,028,000)

Slowed Increase in Annual Operating Expenses

2006 $335,815,000

2007 $387,313,000 $51,498,000

2008 $417,088,000 $29,775,000

2009 $427,236,000 $10,148,000


Savings from Organizational Restructuring

Reduction in Size of Supplier Base


Recommendations for Further Profit Maximization

Focus on forecasting

Sales, costs, demand, inventory needs, etc.

Cut waste from the supply chain

Products that are under-performing in the market


Suppliers that arent providing quality that meets
the cost
Shutdown warehouses and distribution centers
that are under-utilized
Elizabeth Ardens
Solution
What actually happened - then & now.

IV
Organizational Structure Under Revlon
June 2016 Elizabeth Arden acquired by Revlon
Past failures in Elizabeth Arderns Supply Chain
Product-level purchasing complexity
Increased Supply chain overhead cost
MICROBEAD brand discontinuation
Revlons Competitive Advantage
NETAPP: Advanced SKU Database
Over $65 million invested in CSR
Centralized Purchasing Strategy
Market share, Product Development
SYNERGY IN DISTRIBUTION NETWORKS

Revlons acquisition of Arden creates a beauty


company that operates across the mass and prestige
spectrums, with a larger, global stage.- Revlon
Spokeswoman
Financial Analysis of Elizabeth Ardens Strategies

Financial changes after effects of turnkey fully realized:

2011 2012 2013 2014 2015 2016

Net Sales $1, 175, 500 $1, 238, 273 $1, 344, 523 $1, 164, 304 $971, 098 $ 966, 733

Current 3.35 2.24 2.24 2.23 1.96 1.59


Ratio

Shareholder $417,765,000 $481,727,000 $515,282,000 $370,989,000 $132,399,000 $59,876,000


Equity

ROE 10.64% 12.77% 8.17% (32.89)% (97.87)% (77.48)%

P/E Ratio 20.59 20.21 33.86 0.00 0.00 0.00


Additional
Information

VI.
Case Assumptions

Inventory for 2006 = $269,270 (not $569,270 - error in case study)


Proportional costs & savings to supplier and employee numbers
- Scale economies / learning curves were not considered in the calculations
Availability of Q2 2008 financial statements from Elizabeth Arden
- To quantify visible impact of Pirards initial changes
Financial Overview: Before & After Turnkey
Supplier Consolidation Savings

Annual contracting cost per supplier = (Total current year costs of staff contracting with suppliers /
Total number of suppliers contracted with during current year) + (Total current year depreciation and
maintenance costs for supporting systems / Total number of suppliers contracted with during current year)

Annual invoicing cost per supplier = (Total current years costs of accounts payable staff responsible for
supplier payments / Total number of invoices paid for current year) * (Total number of invoices paid for
current year / Total number of suppliers with spend for current year)) + (Total current year depreciation
and maintenance costs for supporting systems / Total number of suppliers with spend for current year)
References
http://www.mypurchasingcenter.com/files/6213/8929/0096/Hackett_Group_Supplier_Consolidation_Research_Article_1.pdf
http://www.stephenguth.com/supplier-consolidation-benchmarks-how-much-will-i-save/
https://www.nextlevelpurchasing.com/articles/supplier-consolidation.php
http://otworkplaceteam.co.uk/blog/2016/06/22/six-major-risks-benefits-supplier-consolidation/
https://www.sophos.com/en-us/medialibrary/Gated%20Assets/white%20papers/UK%20public%20sector/sophoswp-top-ten-unbeata
ble-benefits-uk.pdf?la=en
http://www.supplychainbrain.com/content/industry-verticals/retail/single-article-page/article/elizabeth-ardens-logistics-makeover-m
ore-than-skin-deep/
http://corporate.elizabetharden.com/supplier-information/
http://www.wikinvest.com/stock/Elizabeth_Arden_(RDEN)
http://www.vault.com/company-profiles/personal-care/elizabeth-arden,-inc/company-overview.aspx