Improvements in the supply chain have been more than cosmetic at Elizabeth Arden, and have added quite a bit of luster to the bottom line for the beauty products company. Since being acquired by French Fragrances in 2001, Elizabeth Arden has increased sales from $382m to nearly $1bn. Annual earnings before interest, tax and amortization (EBITA) have doubled to over $100m. In 2005 alone, net sales rose more than 10 percent and earnings increased by nearly a third.
According to company Chairman and CEO E. Scott Beattie, Elizabeth Arden's strategy has been to build and develop brands while driving down operating costs.
"Several years ago, we committed to a long-term strategy of reducing operating costs and interest expense while reinvesting these cash savings to reinvigorate our brands," said Beattie in the company's most recent annual report.
In keeping with this strategy, Elizabeth Arden has aggressively been revamping its supply chain to reduce logistics costs as a percentage of sales, while vastly increasing distribution and shipping capabilities throughout the U.S. and the world.
Elizabeth Arden markets and distributes more than 100 company owned or licensed fragrances, cosmetics and skin care brands including such well-known names as Elizabeth Arden Red Door, 5th Avenue, Passion, Prevage and a number of products carrying the Elizabeth Taylor and Britney Spears names. It also distributes an additional 250 brands from other beauty products companies.
Dramatic changes began shortly after Unilever sold Elizabeth Arden to French Fragrances in 2001. The new parent, which immediately adopted the name of the globally famous brand, concluded that its network would not efficiently support its new distribution requirements.
Before the acquisition, a larger portion of Elizabeth Arden's shipments were in volume quantities from its Roanoke, Va., distribution center to retail distribution centers for prestige department stores such as Macy's, Dillard's, Saks and Nordstrom's. A warehouse in Edison, N.J. primarily handled promotional items to these retailers. A distribution center in Miami Lakes, Fla., shipped only to mass merchants. This multi-location network had built in inventory redundancy and longer inbound cycle time from manufacturers that had to ship products to all DCs.
"There was a major shift in our shipping patterns after the acquisition," recalls Kathy Poff, the senior manager of logistics business systems who was part of the team under vice president of logistics Roy Drilon, which was about to completely revise the company's distribution network and systems.
New Shipping Patterns
The new company strategy was to ship directly to many more retail stores for the large department chains, as well as to increase sales to mass retailers, including Wal-Mart, Target, Sears, Kohl's, Walgreen's, Rite-Aid and CVS. There was also an increased emphasis on international shipments, not just to foreign affiliates and large distributors serving large foreign retailers such as Boots, Debenhams and Sephora, but also to travel retail outlets, such as duty-free shops and airport boutiques. These locations have limited storage space and require frequent and small shipments.
To meet these changing needs, the company decided to rationalize the U.S. distribution network that at the time included one million square feet of distribution space among the three DCs in Florida, New Jersey and Virginia as well as several overflow facilities. The company centralized all distribution in Roanoke. Most production was near this facility, but also 80 percent of the customers could be reached within 24 to 48 hours of the Virginia DC. The facility had also proven to be more efficient, the IT more advanced and the workforce was already trained. The company invested $5m in material handling and information technology and another $6.5m in building improvements that expanded the leased facility from 265,000 square feet to 400,000. An enterprise resource planning system from JBA (now part of Infor) resides on an AS/400 and runs operations at the facility, as well as return processing operations at a nearby 76,000-square-foot warehouse.
While the DC was expanded in size by nearly 50 percent, the total square footage is still much less than the one million square feet that the company had just after the merger in 2001. The rationalization of facilities and improvements to the Roanoke DC were completed in March 2004.
While Elizabeth Arden's 10 largest customers now account for approximately 39 percent of net sales (with Wal-Mart being the largest), the actual number of customer shipping destinations has increased from 7,000 to 35,000. The number of shipments has also doubled because the size of shipments has changed. Whereas volume-based customers used to require only twice-monthly shipments, many customer locations now require rapid fulfillment of small orders based on retail stores' point-of-sale data.
Within the Roanoke DC, material handling changed dramatically. Because of the broader range of order sizes pick faces grew from 3,000 primarily devoted to case picks to over 13,500 that include thousands of item pick locations. In fact, the number of shipping locations in the warehouse tripled from 14,000 to a total of 42,000. The five-high pallet rack system was replaced with a high-density storage system served by very narrow aisle turret trucks. The number of receiving docks increased from six to 12 and shipping docks from 17 to 21.
Even with the greatly reduced amount of warehouse space, the new material handling capabilities at the Roanoke DC have doubled the output of orders to around 4,000 per day. Cycle time has been reduced by two days.
Elizabeth Arden domestic shipments range in size from truckload volumes to retailer DCs down to small package express shipments to individual stores. Even when the shipment is a full truckload to a retailer DC, orders are often assembled and packed for individual stores.
"For Wal-Mart, we pack orders at the store level, consolidate them onto one freight bill and move them in one truckload to the regional DC serving those stores," says Poff.
Promotions usually consist of prestige, high-dollar items. The Roanoke DC assembles case quantities of "pieces," with each piece containing a variety of products in a package of individual items being featured at specific stores. The promotions are generally buy-one-get-one-free deals or price-discounted for buying a certain dollar value of product.
"We develop case quantities of these promotional pre-packs for the stores based on a forecast for that promotion," says Poff, who adds that 3PLs often handle distribution of the promotions. "We assign them a specific promotion that tends to be the same each time we run it. We send them labels and packing lists. The 3PL just has to assemble the order and ship it. We keep it very simple for them."
Increased International Business
Another area of success has been a significant increase in international distribution. Elizabeth Arden's international business expanded 27 percent in fiscal 2005 to the point international sales represented 38 percent of total net sales. Sales growth has grown especially fast in travel retail and duty-free stores where retail sales increased 39 percent last year. Sales in Canada, South Africa, Spain and Australia each achieved sales growth of over 30 percent in fiscal 2005.
Elizabeth Arden's focus on logistics efficiency has allowed the company to achieve this international sales growth while tightly containing distribution costs. The Roanoke DC replenishes eight Elizabeth Arden affiliates around the world, to cover Canada, Puerto Rico, New Zealand, Australia, Korea, 'Greater' China, South Africa and Europe. The Roanoke DC also directly serves more than 200 international distributors around the world, as well as hundreds of small travel shops at international airports and border locations. The Canadian affiliate receives its product from Roanoke primarily at a 3PL distribution center in Toronto operated by McKesson Logistics Solutions, which handles fulfillment throughout the country.
|"We wanted an export management system that would meet our future shipping needs as our international business continues to grow."|
- Kathy Poff of Elizabeth Arden
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