Supply Chain

Avon delivers beauty around the world with the support of JDA solutions

As the worlds leading direct seller of beauty and related products, Avon markets to women in 143

countries through 4.8 million independent sales representatives. Avons well-known brands

include Avon Color, Anew, Skin-SoSoft, Avon Solutions, Advance Techniques Hair Care, Avon

Naturals, Mark and Avon Wellness. Avon also sells an extensive range of fashion jewelry, lingerie,

fashion accessories and gifts. Avons products are sold with widely varying product offerings in

different countries and through multiple channels including direct, Internet, catalog and outlets.

Consolidation and globalization of both competitors and customers and the rapid growth of

developing markets has also increased the complexity of the business. As a result, this highly

promotions-driven market produces fluctuations in product demand and a complex supply chain.

Although Avons operations expanded considerably in Europe, the Middle East and Africa

(EMEA) in recent years, there was no single central planning function that was responsible for

demand, inventory, and supply planning. Production planning at Avons three factories in

Poland, Germany and the United Kingdom was highly manual, inflexible, unresponsive to

customers requirements and could not support Avons planned growth into new markets.

Processing 50,000 orders each day, products must be available when the orders are received to

ensure excellent customer service. To achieve this, Avon needed to become much more efficient

in the way it dealt with product availability and inventory.

Creating a consumer-driven enterprise

Fulfillment solutions to implement across its global enterprise and to respond quickly and

effectively to consumer demand generated worldwide.

According to Sue Morton, Project Director of European Supply Chain Initiative Avon Products

Inc.

The particular benefit of the JDA software was the advanced planning and distribution

functionalities, along with its built-in flexibilities, added Morton. This allowed us to meet the

needs of many different types of Avon markets in one implementation, without the delay and

expense of software modification. The other key benefit was the lower total cost of ownership with

JDA.

The JDA solutions collect supply chain information from Avons 29 markets. This data

inventory, future sales demands, transport schedules and sales history information along with

JDA advanced planning parameters provides Avon with a strategic distribution and manufacturing

plan. Additionally, JDA provides Avons planners with a list of service risks, inventory imbalances

and shipping requirements. All of which enables Avon to work collaboratively across borders and

to streamline its order processing. Delivering benefits Since implementing the JDA solutions,

Avon has complete visibility of all aspects of its supply chain. The cost of servicing customers has

been reduced and the customer service rating has increased to 99.5 percent. More importantly,

inventory levels have been reduced by 17 percent in just six months. That equates to an immediate

savings of $20 million. Concluded Morton, JDAs solutions enable Avon to grow and expand in

a controllable way, enter new markets and countries and provides us significant potential for

further expansion in the future.

Avon focused on improving two aspects of

storage modes in which they are kept, and replenishing the supply of those items in the storage

modes. Items in the order fulllment area are picked and replenished in one of two ways:

Items can be picked from a machine called an A-frame, which dispenses items into

containers corresponding to each order. This machine can process about 40 orders a minute,

so the supply of items stored there can be quickly depleted. Because of this, cases of each

item picked from the A-frame are stored in owrack located near the machine; this supply

is used to replenish the A-frame. The supply in the owrack is replenished from bulk

storage, as shown by the solid arrow in Figure below.

The order fulfillment area at Avon.

Supporting flowrack A-frame

---------------- -- - - -

Bulk storage
Flowrack where items
are picked manually
 Items can be picked by workers who visit an items storage location. Skus picked manual

ly are stored in sections of owrack and shelving, and items are

restocked in their storage locations directly from bulk storage, as shown by the dashed arr

ow in Figure 1.

Every two weeks, Avon must decide which items should be picked from the A-frame and which

should be picked manually. Items picked from the A-frame have a very low cost-per pick, but the

cost of re-stocking the supply is relatively high, because the A-frame is depleted quickly. Items

picked manually have a higher cost-per-pick, but they are cheaper to restock, because they are

stored in greater volumes. In addition, Avon must decide how much space each item should

occupy in

its assigned pick area: if an item is given more storage space, it will need to be restocked less

frequently, but other items will then have less space and thus incur more restocks.

Their task was to determine

which items should be stored in each storage mode, and

the quantities in which they should be stored,

in order to minimize the total cost of picking and restocking the order fulllment area. The proce

ss of assigning items to storage modes and determining the quantity in which they should

be stored is called slotting the warehouse.

A multi-tier inventory system in the Avon warehouse

describe the system below for two reasons: to highlight the issues that must be addressed to

minimize operations costs, and to show why a warehouse may establish a multi-tier inventory

system. We will use the Avon inventory system as an example to illustrate results throughout this

research. Avon Products, Inc. sells cosmetics and gift items; in 2002, they were the fifth biggest

presence in the cosmetics industry by sales. They sell items through a network of 3.4 million sales

representatives in 139 countries, each of whom collects the orders of their customers and places

an order to her assigned warehouse. The warehouse outside Atlanta fills orders for approximately

150,000 sales representatives in the southeastern United States. Sales representatives transmit their

orders to the warehouse every two weeks, a period known as a campaign. Most representatives

place only one order per campaign, but some with high sales volumes may place two or three.

Between 150,000 and 170,000 orders will be processed in a typical two-week period. Each order

requires 60 pieces, on average, meaning that over 10 million pieces are sold every two 3 weeks.

Because each representative usually requests only one or two of each sku they order, these pieces

represent almost the same number of picks. Piece picking is therefore a very labor-intensive

activity in the Avon warehouse, and it is a priority of the management to reduce costs for this as

much as possible. Orders are picked in a section of the warehouse called, appropriately, the order

fulfillment area. The order fulfillment area has a footprint of approximately 120,000 sq. ft., and

must have a picking location for 6,0008,000 skus. Because there is limited storage space, most

skus have additional supply in the bulk storage area of the warehouse, known as the back

warehouse, and storage locations in the order fulfillment area are restocked from the back

warehouse as needed. Restocks happen constantly as skus are being picked; one-third of the labor

force in the order fulfillment area is dedicated to restocking skus. In 2002, only about 64% of the
orders fulfilled in the Atlanta-area warehouse contained all the items the customer ordered; some

of this was due to manufacturing backorders, but some was due to stockouts in the order fulfillment

area. For this reason, Avon management wants to ensure that each sku has sufficient supply to

avoid stockouts, and to use restocking labor as efficiently as possible. Skus can be picked from

one of three different storage modes: a section of pick-to-light flowrack called manual lines; a

section of shelving and flow rack called cart pick; and from an automated picking machine called

the A-frame.
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