Belcorp’s Maturity in Supply Chain Design
When companies implement enterprise software solutions, they often label that implementation as being part of their company’s digital transformation. But implementing new software does not digitally transform anything if the people that are supposed to use that software cannot do so effectively. Belcorp Corporation has actively worked to be a leader in ensuring that their people can effectively use a complex type of software known as supply chain design. Using this software effectively is about more than the functionality. It requires a company to further leverage the supply chain design philosophy.
I recently talked to Nicolas Frasquet and Germán Ricardo Rodríguez Parra of Belcorp Corporation. Mr. Frasquet is the executive director of corporate procurement, although his responsibilities include a much broader set of supply chain responsibilities than just sourcing. Mr. Rodríguez is the operations strategic planning manager and he leads a team focused on the company’s supply chain design.
Belcorp Corporation, headquartered in Peru, manufactures cosmetics and personal care products for women in 14 nations across South and Central America. It offers fragrances, facial and body treatment products, makeup products, and personal care products. The company offers its products primarily through 900,000 beauty consultants; this direct channel generates most of the company’s roughly $1 billion in annual revenues. The company sells their products across three primary brands targeted at different demographics.
Belcorp, like most companies in their industry, has quite a complex supply chain. In Belcorp’s case they have four factories located in Colombia, Mexico, Peru, and Ecuador. Production flexibility is limited; none of these factories can make all the company’s 1,500 products. The company puts out flyers every 3 weeks; each flyer has many new products. During a typical year, the company introduces more than 250 new products. These new products generate up to 30% of the company’s revenues. Forecasting beauty products, which are susceptible to a broader sense of what is in or out of fashion, is difficult. But forecasting new product demand is even more difficult.
Logistics can be a challenge. In some of the larger cities they serve there are addresses for all homes. But in rural areas, there are often no specific addresses. Rather, directions are used. For example, go to the Walmart, turn right, and it is the third house on the left. For consumers in metro areas located close to their factories, there is a one-day lead time. For rural areas, the lead time can be as much as five days.
Additionally, traditionally beauty consultants sold products and the company shipped products to the consultants. The consultants then became responsible for delivery to their customers. That is changing. The company is giving their consultants mobile applications that allow their consultants to better manage their business. These apps allow consultant to ship products directly to their customers.
The pandemic has increased complexity. It accelerated the move toward direct shipments to customers. Further, forecasting became more difficult. Sales of some products decreased greatly, while sales of others boomed driven by a change in consumer habits towards different cosmetic product categories.
Belcorp seeks to mitigate this complexity by using a supply chain design solution from LLamasoft. A supply chain design solution examines business decisions a company can make in a strategic planning horizon – from six months out to five years or more. The solution can answer questions like where should new production or distribution capacity be located to optimally accommodate anticipated growth in demand? What factory should make a new product? How will total landed costs be impacted by adding a new supplier? How do we best handle surging transportation costs? What will the total costs be associated with different green strategies?
A supply chain design solution examines the trade-offs between sourcing options, production and distribution costs, inventory carrying costs, transportation costs, customs and duties processes to come up with the total costs associated with achieving a targeted service level for a particular strategic option. The supply chain design solution is a digital map – or digital twin – of a company’s supply chain. This digital twin contains network costs – the inventory carrying cost is X for this product, by Y for this one. It costs A to produce this stock keeping unit (SKU) at this factory, but B at this factory, and many, many other granular supply chain costs. On top of this cost network model, the solution allows for various scenarios to be kept and compared.
Belcorp has been working with supply chain design solutions for more than ten years. They started with IBM’s LogicNet solution. LLamasoft bought LogicNet in 2015 and Belcorp upgraded to the LLamasoft Supply Chain Guru solution shortly thereafter.
Using network design solutions, the company saved millions of dollars based on better decisions on how to utilize their network. The chart above shows Belcorp’s total cost reduction percentage year by year. The cost reduction includes sourcing, customs & duties, transportation, production, and inventory holding costs. At this point, they do not include distribution reduction costs. Distribution cost reduction is on Belcorp’s roadmap 2021, so it would not be surprising to see more significant savings in the coming years.
In 2018, they implemented a LLamasoft inventory optimization solution. For Belcorp, this was a critical initiative to help them analyze the ever-growing number of stock keeping units. They estimate that SKUs increased by over 20% over the last 3 years. Leveraging this solution for the last three years, Belcorp has successfully managed to reduce by nearly 25% their total inventory and by nearly 35% the dedicated safety stock, while improving overall service level by 6 pts.
But the savings were not just based on optimization technology. They view the years 2018 and 2019 as years when the maturity with which they were able to use these solutions greatly increased. LLamasoft has developed a supply chain design maturity model. Belcorp is the top performing company in Latin America in terms of maturity.
This maturity model is quite detailed. It examines the skills of the people on the team, the process, technology, and strategy associated with supply chain design. In each area there are from 30 to 70 criteria that are examined to help produce a score.
While there are many criteria, in Mr. Frasquet’s opinion, a few things are critical. A company must have a dedicated team for supply chain design, this is not a side job where a project team is created to answer an ad hoc question that comes up. From a process perspective, an analysis is not enough. Once an analysis is completed, it must be shared with business leaders, decisions must be made based on that analysis, there must be a process in place to execute the decisions, and the results must be measured. But most fundamentally, a company must be data driven. Decisions must be made based on a thorough quantitative analysis. That must be part of the company’s DNA. LLamasoft helped accelerate the Belcorp’s ability to make data-based business decisions that span across the corporation.
And supply chain design maturity does not just decrease costs, it can help a company respond with greater agility when disruptions – like a global pandemic – occur, as Belcorp has proven resiliency of its supply chain in 2020.
Belcorp has certainly weathered the pandemic better than many of their peers in the beauty care products industry, helped by Belcorp’s direct sales model. Other beauty companies that sold their products through small cosmetic stores, saw those stores closed with greater impact to their sales.
But Mr. Frasquet points out their agility has also served them well. The company has had a total reset of their product portfolio, with an acceleration of the sale of personal care products while sales of make up have greatly decreased. This was not only an ambitious Innovation shift, but also a severe supply chain challenge. But Belcorp largely managed to get back to historical total sales level just after the worst two months market crash.
Many companies have purchased high end solutions and then driven those solutions like they owned a Volkswagen bug rather than a Maserati. Belcorp has not fallen into that trap and has proven that dedicated and skilled teams, robust processes, and a data driven culture are fundamentals in ensuring sustainable digital model.