Elizabeth Arden's Supply Chain Gets Dramatic Facelift

Not unlike the end users of its cosmetics and fragrances, Elizabeth Arden treated itself to a makeover. Challenged by quick response and other customer-driven changes in its retail business, the manufacturer-marketer dramatically reduced inventory and order-cycle times by upgrading operations in its logistics center, implementing new export documentation software and adopting a unique management structure that places responsibility for logistics and manufacturing in the hands of the same man.

One of more than 300 companies owned by Unilever, Elizabeth Arden maintains corporate offices in New York while its North American manufacturing headquarters and logistics center operate at separate locations in Roanoke, Va. Sales and administrative offices are in Stamford, Conn., and a research and development site is in Trumbull, Conn.

"Our arrangement at Elizabeth Arden is very unusual, where the logistics person responsible for customer service and distribution is also the guy responsible for production," said Roy C. Drilon, vice president of Roanoke operations and the point man for both functions. "But this setup enables us to really impact customer service and the order-cycle time. Wearing both hats allows me to bring a more global perspective to supply-chain management and see the operation from a bigger window."

	The need to quickly respond to customer demand intensifies the value of flexibility at the manufacturing level at Elizabeth Arden.

Elizabeth Arden processes nearly half a million orders a year - as many as 10,000 per day - from the 258,000-square-foot logistics center, which underwent a $3m systems upgrade that was completed in March 1996. The facility houses corporate offices as well as more than 235,000 square feet of distribution center. Orders can range from a small UPS/RPS-sized shipment for a cosmetics specialty store to a full containerload destined for an overseas distribution center. A traffic manager at the logistics center handles inbound shipments from suppliers directly to the 365,000-square-foot manufacturing facility located about 10 minutes away and helps flow finished products back to the logistics center for temporary storage and deployment.

On the manufacturing side, the Roanoke facility predominantly focuses on colors and treatment products. Fragrance filling is done at a sister company's factory in Puerto Rico. The company also maintains manufacturing and distribution facilities in Cape Town, South Africa, and Acton, England. Another distribution facility is located in Lille, France.

The logistics center oversees deployment of raw materials and components to the overseas factories and finished products to the distribution centers, with all products moving through the Roanoke facility.

Elizabeth Arden also deploys finished goods inventory to about 10 country affiliates which service domestic distribution in Australia, New Zealand, Japan and other locations. In addition, the company services at least 120 international distributors, processing their orders in Roanoke and deploying shipments directly to their respective destinations. The distributors are non-Arden entities, and they take care of their own respective distribution in those market areas.

In the U.S., Roanoke processes orders from more than 3,000 prestige department stores.

Orders range from ASAP status (48-72 hours) to three or four weeks lead time. A typical order is to execute in seven days. The company sells approximately 3,000 different product SKUs and has 30,000 SKUs for raw materials and components used in the various manufacturing processes.

Approximately 35 percent of the company's business is domestic. Of the remainder, about 10 percent is raw materials and unfinished goods bound for factories. The rest is split evenly between distributors and company affiliates. There are sales offices in New York, Latin America, Geneva and Tokyo, all connected electronically to the Elizabeth Arden system in Roanoke.

Market Values Global View
"In the U.S. over the last five years we have seen a shift by our customers towards proven supply-chain logistics strategies coupled by a move into the electronic commerce environment where orders are generated by the accounts through point-of-sale information and electronically transmitted to us," Drilon said. "Our first EDI account came in 1995, and we recognized that this was going to be the environment in which our customers would be operating, and we would have to adapt."

Quick response and EDI capabilities are geared toward rapid turnaround, Drilon said. "Nobody wants inventory," he said. "They want a quick turnaround time on their orders." Gone is the traditional thinking that everybody has numerous regional warehouses with stockpiled inventory to supply a series of stores. "Now, in the modern accounting sense, when you put your money into inventory, you get a financial charge against that."
What does this mean in a practical sense? In the past, for example, Elizabeth Arden would get one order a month from Macy's and have 25 days to execute it. "Now, for the same amount of dollars we are getting from Macy's on a monthly basis, they are giving us 10 or 12 different orders over that period - one nearly every other day. And we have other accounts that are sending us orders on a daily basis."

Consequently, vendors like Elizabeth Arden have had to become more efficient. "Our customers want us to be in stock on items they can sell. If you understand what they are doing, you can take advantage of that as a vendor, because we don't want to have our DC loaded with products we cannot sell."

And Elizabeth Arden has taken advantage of it. Drilon reported a substantial reduction of inventory as a result of this process. "At the end of the year, I have 40 percent less inventory in finished goods and raw components compared to about three years ago in terms of absolute dollars. So the customers have forced us to become efficient suppliers, because the point-of-sale information that triggers the order transmission to us is a quantification of the actual customer demand."

It used to be that retail stores were run by buyers, but they are starting to become a diminishing species, he added. "Supply-chain logistics, point-of-sale information and automatic replenishment systems are getting more and more dominant in our kind of trade."
The need to quickly respond to customer demand intensifies the value of flexibility at the manufacturing level at Elizabeth Arden. Traditionally, factories like to operate on a disciplined schedule, because the role of a factory is to maximize its capacity, Drilon noted. Factory managers often are rated on asset utilization.

"If you have a machine that can spit out 100,000 lipsticks a day, you want that machine to produce 100,000 lipsticks a day. Those intentions are good, but if you can take those intentions and blend in customer awareness, you can maximize your capacity attuned to what is the most pressing demand in your market.

"And that is the change in strategy we have employed this year: the rearrangement of production priorities. As a factory, we are not geared solely towards asset utilization or production rate maximization, but we combine those elements with customer service. What's the most pressing demand out there that we should realize? If Japan's requirement for a treatment-product SKU has to go first because of the transit time, then we have to rearrange our production schedule."

Two Facilities, One Site
This transition meant treating the logistics center and manufacturing plant in Roanoke as a single site rather than as two separate and distinct entities. Getting the factory end of the equation to buy in on the process was key, he added.

"When we converted into a site operation, one element we introduced was opening up the factory to an awareness that the factory world is not just capacity and utilization of assets and industrial engineering, but that it should be equally aware of the customer demand and customer service commitment." Doing that eases the transformation of production scheduling. Plant managers understand and support rearranging production lines because of a pressing market need for a certain SKU, and that that production will net greater sales for the company.

"People don't realize that it's a strategic change in culture," said Drilon. Before being placed in charge of both disciplines in May 1998, Drilon ran the logistics center. "There were occasions when I had to plead with my counterpart here at the factory to give me another 3,000 units of a particular item or promise to pick up the overtime charge for two additional production lines on a Saturday to fill a hot order for Macy's. Now, because of the site operation, this happens automatically: The people in logistics two levels below me are communicating directly to their counterparts over here at the factory and resolving these issues as soon as possible.

"With all the changes this year, we feel that manufacturing is a key player in our supply-chain process. Because we are operating as a site rather than as two facilities, we are able to rearrange our production priorities based on demand. We have more forward visibility of customer demand, whether foreign or domestic, and are able to rearrange our production or assembly operations here in this facility to deal with those demands."

Export Document Bottleneck
The need for quick response and growing exports underscore the value of Brookfield, Wis.-based International Software Marketing Group's SPEX export documentation system to the operation.

"All of these improvements and enhancements designed to reduce order-cycle time will be negated if the last link of the business to the customer does not have an efficient system to spit out the order," said Drilon. "And before we had the ISM system, export documentation was our weakest link."

Selection of the SPEX system was linked to a decision early in the decade to install JBA International's software system for order processing, inventory control, warehousing and distribution.

"We were looking for a system that could give us the flexibility to receive orders electronically and accept orders manually; enter, process and ship both domestic and international shipments; perform a piece-pick, case-pick, carton-pick and pallet-pick; track our inventory and give us other good warehousing capabilities," said Sandra A. Jones, manager of export customer service at the logistics center. Elizabeth Arden initially conducted their needs assessments and product evaluations in-house, then worked with consultants on the RFP and put bids out to different companies. "Each of the companies that responded came in and made a presentation. The JBA system won hands-down."

They installed the JBA package for order processing, distribution and inventory control on the resident AS400 mainframe and began looking for a product to ease the strain of export documentation needs.

"We had been manually calculating and preparing all the SED [shipper's export declarations] and other documents, such as certification of origin, certificates of insurance ... there was a tremendous amount of detail to remember from a manual mode: who required what and when," said Jones.

Much of the responsibility for the program search fell to Katherine R. Poff, manager of business systems and database management at the logistics center.

	"The people in logistics two levels below me are communicating directly to their counterparts over here at the factory and resolving these issues as soon as possible." - Roy C. Drilon of Elizabeth Arden

"We put out some feelers and had a number of vendors come to us with products. But frankly, we had a very difficult time actually finding a company to give us what we wanted," said Poff. "We required the hazardous materials capability, because we ship a commodity that contains alcohol. But we had difficulty finding a company that could interface with our system, and we didn't want to have to turn around and re-key all of our shipping data to get it down into an export documentation system of any type.

"We also wanted a system that could consolidate orders, because we could have half a dozen separate orders from one customer for a variety of different promotions or basic stock, but they were bound for the same destination. We needed a system that could combine those different orders into one shipment."

The JBA group had formed a relationship with ISM in 1991, shortly after Elizabeth Arden installed the JBA package. It brought the manufacturer and the software developer together.

"ISM had the ability to connect and interface with both the AS400 and the JBA package, and the company demonstrated its willingness to work with us to meet our needs," Poff said.

For example, since Elizabeth Arden ships raw materials - some of them hazardous - to different countries, that puts it into a much more detailed and vigorously regulated area for hazardous materials, Poff explained. "That was a downfall of many of the systems that we looked at. But ISM helped us develop a document that would be able to comply and to meet that need. The document itself was a regular standard form, but ISM helped develop the data and how the data would get to that form, and to maintain that data so that it required as little manual intervention as possible."

Looking back, Poff figures that Elizabeth Arden may have been ahead of the curve in terms of needs. "We were debating doing it in-house, but the timing worked out well with ISM. Another big plus was that ISM was in the process of rewriting its software at that particular point of time, so we had an opportunity to specify certain aspects of the upgrade."

Processing Orders
Here's how it all works. Product orders are funneled electronically from various sales channels into the AS400 at the logistics center where they are downloaded to the JBA system. Orders are processed in waves by carrier during the business day, and one of the first waves is for export shipments so the export traffic group can get busy.

For piece picking, the system selects the appropriately sized carton and affixes a UCC 128 barcode label bearing the specific order number and relevant information. The label is scanned, and the carton is tracked by a number of scanners throughout the DC. The cartons are then inducted into the system, and that information follows the carton to the DC's "sort-to-light" system where pickers follow the cues of bin lights that guide them in assembling the contents of the order.

Completed orders travel on conveyors through a weigh-in-motion system made by Mettler-Toledo of Hightstown, N.J. It scans the barcode, computes the projected weight of the order contents plus the weight of the carton and compares the projected weight to the actual weight of the shipment. The scale processes 55 cartons a minute. Cartons exceeding the predetermined tolerance levels are kicked out to an auditor's stand for a manual audit, as are a randomly selected fixed number of in-tolerance shipments as an accuracy check.

Cartons that clear the weigh-in-motion scales proceed to a station where they automatically are filled with dunnage, then closed and sealed by a Wexxar cartoning machine. Shipping labels are applied by an Intermec Model 4400 unit made by AppliTech Systems of Altavista, Va., and sent on to be matched up at a wheel sorter with any items from the separate case-pick area that are part of the same order. Once these items are matched up, the sorter diverts them to the appropriate conveyor as determined by outbound carrier. The conveyor sortation system is manufactured by Rapistan Demag of Grand Rapids, Mich., and the interface software was designed by Industrial Automation Services of Birmingham, Ala.

Dock operators at the shipping lanes extend the conveyors into the truck trailers and stack the shipments onto the trailer floor as they arrive.

Export orders are handled a bit differently, Poff said. "When those orders come into our sales order-processing system here, they go through all of our up-front processes and are then sent to the warehouse for picking. At that time, a copy of that order is sent from the AS400 down to the ISM system."

When the order is scheduled to the floor, the contents are picked and packed and at the end of the sorter they are pulled off onto a pallet and sent to the export packing services department.

"At that point, any special handling, labeling or other value-added services required by the customer, takes place," said Poff. "When the export order hits the export processing area, the shipping documents are waiting in the ISM system. We then groom the document in the ISM system, noting whether there were any changes to the order, how we packed it, and what special notations, if any, need to be added to the paperwork. A packing list also is generated for each international shipment." Special handling includes any required overpacking, as some customers prefer shipments to be palletized or loaded into combo bins or other special packaging requirements. These can vary depending on the distance, the mode of travel, and the destination country, Poff added.

The orders are then sent to the export traffic area, which is responsible for the completion of the documentation - the invoice, shipper's export declaration, the IMO or IATA hazardous materials notices and any other required documents. "We tell the system to print the documents, then we marry them with the goods, load it on the truck and off it goes either as LCL, air shipment or full containerload, depending on the size of the shipment."
Carrier mode and selection usually is made by the customer, depending on the shipping terms.

SPEX Benefits Are Visible
The ISM system has had quite an effect on export operations, said Jones. "It's made a tremendous difference in our manpower requirements. Before the implementation of ISM, we had five or six customer-service people and an additional 12 or 13 assigned exclusively to the shipping operation. Now I have 11 people, and nine of those are actually doing customer service in addition to some shipping work. So we were able to merge the two jobs, plus we have added other responsibilities to those positions."

In addition to the manpower requirement, ISM produced a big difference on the accuracy front, she added. "When you have an order that involves a long string of commodity codes and a variety of UN hazardous materials code items - all of which have to be typed by hand - the potential for human error is pretty high. In contrast, the ISM database is superb and virtually error-free." The few errors that do occur generally stem from the newness of a product and the fact that its content information had yet to be completely entered into the system.

"ISM also allows us to do consolidations for customers, and that is really beneficial, not only for us in terms of paperwork but for the customer in terms of the freight bill. Now the system does the consolidation up front and passes all of the orders by customer out so when they are all completed, we are able to ship them all together and there is no consolidation on the dock."

Additional Efficiencies Eyed
This past summer Elizabeth Arden upgraded its ISM package to the Windows product. "This transition brought a great deal of flexibility for us compared to the DOS environment. It's basically the same software system, but it's much more user-friendly and icon-driven," said Poff.

Drilon has his eyes set on additional efficiencies as well.

"There are still some additional things that we need to improve in ISM," he said. "Although as I said, we are now able to do the physical processes and the documentation in the same day, we still want it to be real-time. We want our global deployment system to behave similarly to what we have in place for the U.S. market, where when the order reaches the end of the line, bingo, the documentation is out and the shipment goes directly into the truck. It doesn't get lost in the purgatory where things are waiting on the dock."

But that is more of an internal challenge, he added, suggesting that some enhancements Elizabeth Arden plans for ISM as well as to the JBA system will cut down order-cycle times by as much as another day.

"When I came here six years ago, 65 percent of our revenues came from the U.S. market. Now, the reverse is true, and that's why global systems like ISM are becoming increasingly more relevant to us," said Drilon.

	"Before the implementation of ISM, we had five or six customer-service people and an additional 12 or 13 assigned exclusively to the shipping operation. Now I have 11 people, and nine of those are actually doing customer service in addition to some shipping work." - Sandra A. Jones of Elizabeth Arden

"Recognizing that, part of our goal in 1999 is to continually improve all supply chain logistics, factory logistics to further serve our global deployment of inventory of finished and non-finished goods, continuous improvements of ISM, and our materials-handling systems. Only half of our export processes go through the most efficient part of our infrastructure in logistics, and those are the distributors' orders." The deployment of finished goods to affiliate warehouses is still done off line because of the huge numbers.

"In 1999, we would like to enhance our materials-handling system by fully integrating all international activities into the most efficient part of our infrastructure." Once those shipments leave the sortation/conveyor system, anything that happens to them is an off-line process that costs additional money: more people, more equipment, more hours.

"With our domestic orders, the moment the carton is closed, nobody touches that carton anymore. The last time it is going to be handled here is when the guy on the dock inside the truck puts it on the trailer floor. But look at some of the export processes we have: There is still a lot of babysitting going on before it is turned over to the carrier."