Elizabeth Arden's Logistics Makeover More than Skin-Deep
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.
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| "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 | |
According to Poff, improving the export shipping operations has been a high priority for the last year and a half. While Elizabeth Arden's international business was growing, its 10-year old system for generating documentation was not able to keep up. Also, with more and more restrictions being placed on shipping some of the ingredients used in their products, they needed a system that complied with hazardous material regulations.
"Our export documentation system was not only failing, it was no longer supported," says Poff. "But we really wanted more than just a better documentation system. We wanted an export management system that would meet our future shipping needs as our international business continues to grow."
A project team, made up of people from the international shipping group, explored the options, developed a list of requirements and evaluated a number of vendors who were asked to submit their responses. Out of this process, Elizabeth Arden selected Precision Software's TRAXi3.
"TRAXi3 actually exceeded our immediate needs, so we decided to implement the modules and functions that would improve out international shipping operations," she says. A key consideration in selecting TRAXi3 was that components and functions could be added easily.
In the summer of 2004, the Roanoke DC implemented three components from Precision Software's TRAXi3, including i3Ship, i3Trade and i3Comply.
New Export System
The timing of the initial implementation was critical because the late summer starts the beginning of Elizabeth Arden's highly seasonal holiday sales. Implementing a new system that late in the year meant that nothing could be allowed to go wrong or the international orders would not get out in time for holiday sales.
The Roanoke DC started the implementation with the i3Trade component for shipping and documentation at just one packing station. The trial implementation was so successful that it has spread across 10 packing stations for two shifts, and i3Trade is now being used for all of the international shipments leaving Roanoke.
The i3Comply component serves several functions for Elizabeth Arden, including handling international hazardous materials shipments. Most of Elizabeth Arden's fragrances are considered Class 9 hazardous materials because of the alcohol content, so shipping them requires special attention. Regulations for hazardous materials have become stricter since 9/11, especially for international shipments.
When domestic orders are received at Roanoke, the JBA system determines which items are hazardous and separates them from the non-hazardous ones. After the orders are picked, the JBA system handles all aspects of the shipping operations for domestic shipments. For export shipments, the export department manually sends orders and the hazardous material information to the TRAXi3 system, which constantly updates its database of international hazardous materials rules to include International Air Transport Association regulations for airfreight and International Maritime Dangerous Goods regulations for ocean shipments. The TRAXi3 system includes all regulations covering labeling, shipping papers, packaging, what products can move together, how products can be shipped, and other constraints. It makes sure each shipment complies with the appropriate regulations for the material and the mode selected. For example, if an order containing Class 9 hazardous materials calls for air shipment via UPS, the system will flag it if the right packaging is not being used or if the documentation is not exactly correct.
"Those shipping papers must be precise," says Poff. "If we make an error, our freight is likely to be rejected by the carrier and we can be fined. Those fines were increased again in February, so we are very dependent on the TRAXi3 system to handle hazardous materials shipments properly."
The i3Comply component also includes deep functionality for checking prohibited or restricted parties, quotas and other export requirements, but the Roanoke DC does not use these capabilities at this time. The Elizabeth Arden office in Geneva electronically receives all international orders from its affiliates and distributors and checks them for credit as well as for compliance with prohibited parties, restricted countries, import quotas, etc.
The next function that the Roanoke DC moved to the TRAXi3 system was export packing. Under the old system, an order was picked into separate cartons which were routed to the dock. Once all of the cartons were full, they would be sent to the export packing stations for assembly onto a pallet.
"The packers had to determine which cartons went on which pallet for each particular order," says Poff. "It was a very inefficient operation."
The packing person would then go to an office and give the pick slips and other information to a shipping clerk who would then re-key the packing list. All operations were manual, which took more time and created more opportunities for error.
Now, the re-keying of information has been eliminated with a Scan Pack system that Elizabeth Arden and Precision have built using the workflow tools within the TRAXi3Ship component. When the cartons come off of the sorter, they are palletized and staged in the export operations area. Upon packing, a new TRAXi3 pallet label is created to represent the pallet. The operator scans each carton's UCC128 label against the new TRAXi3 pallet label to systematically build the packing list. Once the packing list is completed, other documentation like the shipper's export declaration, shipper's letter of instruction, the bill of lading, and invoice, along with all necessary hazardous materials shipping papers, are generated.
The Scan Pack system works with a wireless scanner that each packer carries. The orders are sent by the JBA system down to TRAX, which knows each carton that has to go onto a specific pallet. If a packer is building two pallets making up an order of 50 cartons, the system knows which 25 go on which pallet. When the packer scans each carton, the system indicates on which pallet the carton should be placed. TRAX provides an error message if the packer tries to put the wrong customer's carton onto another customer's pallet, so order item mistakes are practically eliminated.
"The Scan Pack system is so precise that it allows us to challenge customer deductions or shortages," says Poff. "We can prove what we shipped and on which pallet it was loaded."
The Roanoke DC phased in the Scan Pack system over several months to make sure it was providing the efficiency needed. In fact, the Scan Pack operation has produced the biggest quantifiable efficiency of the TRAXi3 implementation so far, according to Poff.
"With the Scan Pack operation, we have measurably reduced overtime," she says. "Packing lists are automatic and pallets are assembled more quickly. We also have reduced order turn time by one or two days. We have also seen a vast improvement in the front office documentation preparation, but these productivity improvements are harder to measure."
In a study done by Barry Brady, the export packing operations supervisor, overtime in his area has dropped by 25 percent in a month-to-month comparison of now vs. a year ago before TRAXi3 was installed. And that was in spite of a 25 percent increase in volume.
Precision Software developed the Scan Pack system specifically for Elizabeth Arden, but it has been so successful that the function is now included in the base product available to any user.
According to Poff, the next step at Roanoke will be load scanning, which is similar to the Scan Pack system for building cartons onto pallets.
"Load scanning will allow us to use the TRAXi3 system to automatically assign and load the right pallet into the right container," she says.
While Elizabeth Arden is now using just three components of TRAX just for its export shipping, it is considering other TRAX modules and functions when it soon upgrades to the next release. Poff says the company is looking at better ways to handle transportation rates and contracts, transportation spend management and import transportation and regulatory compliance.
"We know we have only scratched the surface of the TRAX functionality, but we tend to phase in new solutions, so we can have smooth implementations," says Poff. "We also want to capture the expected payback of each implementation before we move on to the next one. One feature of TRAX that we especially like is that all the components run on one platform and are completely integrated. We can switch on new functions when we want to implement them. From a systems point of view, that makes for very easy implementations."
Tight integration, volume capacity and system flexibility are all strengths of TRAXi3, says Drilon, the senior vice president for distribution.
"Elizabeth Arden expects our international volume to continue to grow in volume and complexity," he says. "Now, thanks to TRAXi3, we don't have to worry about our export operation being able to keep up with the demand."