L’Oréal: the beauty of supply chain digitalization (by IMD)

French beauty company L’Oréal first embarked on its digital transformation journey more than a decade ago. Today, it provides an excellent case study of effective, successful digital transformation. L’Oréal’s journey emphasizes the role of senior leadership in setting the vision for transformation, and highlights the importance of linking supply chain digital strategy to company-wide digital strategy.

L’Oréal is one of the largest consumer goods companies in the world. The company prefers to manage its own production, and has a global footprint of 40 factories that manufacture more than six billion units a year. It has more than 50,000 suppliers upstream and over 500,000 delivery points.

In 2010, the dawning digital world promised a future full of possibilities. L’Oréal CEO Jean-Paul Agon recognized this, and declared 2010 “The Year of Digital”. He encouraged different functions within L’Oréal to begin exploring digital transformation, as part of his broader vision to rethink the beauty industry as a whole. Functions were tasked with continuing to provide the best products, but to adapt these to changing market and consumer needs. This was a complex challenge in an industry distinguished by its heavy turnover of products and launch cycles, high promotional activity, multiple distribution channels and changing consumer tastes.

Agon’s vision spurred functions, especially sales and marketing in the different countries, to begin growing organic initiatives with entrepreneurial zeal. Four years later, the company employed its first Chief Digital Officer, who began building a structure and framework around Agon’s initial vision under the banner 20/50/100 (20% of sales should be through e-commerce, 50% of all interactions personalised and 100% of the company’s brands should engage with consumers through social media). This was met with some scepticism internally, with the belief that the luxe channel required in-person interaction. Digital transformation meant a radical rethinking of the way the company understood the market, and it found itself on a journey that challenged its culture, its approach and even its value proposition.

In 2016, L’Oréal created the position of Chief Operations Digital Officer to understand and explore how new technologies could change how the company manufactured and distributed products, while maintaining a coherence with the company’s digital transformation efforts. This brought the role of the supply chain in the transformation journey to the fore. The focus was on developing new capabilities and outcomes rather than on implementing specific technologies; this included lowering product development time, developing products that interact with the consumer, fostering manufacturing and distribution agility to respond to ever-increasing demand volatility, developing personalised products and leveraging data to improve the supply chain.

It is important to note that Agon’s vision of transforming the beauty industry extended beyond products to services, such as diagnostics, consumer experience and personalisation. To enable this, the company focused on technology and IT as key enablers to deliver these services. IT moved from Finance to Operations, and Beauty Tech was born with the goal of bringing resonance to the transition from just products to both products and services. Beauty Tech went on to deliver a range of new capabilities including AI-enabled virtual testers for make-up and hair color, shade finder diagnostic tools, and tele-consultations.

Of the many initiatives enabled, two offer an understanding of the capabilities prioritized by L’Oréal in service of its vision of a future of tech-enabled agility and beauty-as-a-service proposition.

The first was demand sensing; the ability of L’Oréal to successfully anticipate and plan demand was key to its ability to respond to changing market trends. The company already had a global end-to-end planning system; this was extended to integrate with suppliers through a pioneering digital initiative to use a Platform-as-a-Service to share the packaging component and raw material requirements digitally with the company’s huge vendor base. The objective of Demand Sensing was to use a cloud platform to integrate daily order portfolios in distribution and actual consumer demand as well as sales on e-commerce in branded retail stores. The company then imagined deploying machine learning to automate the demand planning calculations.

L’Oréal also introduced many innovations in the space of personalization and increasing the proximity of interactions with the consumer. One such example is the Lancôme brand’s Teint Particulier foundation concept, which analyzed consumer skin tones at the beauty counter enabling a foundation to be blended on the spot to meet their needs.

L’Oréal’s journey demonstrates that, if executed correctly, the supply chain can become a strategic element in the value proposition and even participate in shaping entire markets in terms of their consumer offering and expectations.

The success of L’Oréal’s supply chain transformation has not gone unrecognized. Gartner, the supply chain advisory firm, conducts an annual ranking of the top supply chains in the world. In 2012, L’Oréal was ranked 71st in the world, according to Gartner. In 2020, L’Oréal cemented its place in the global supply chain ranking by finishing in the top 10 for the first time. You can read more in the IMD case: L’Oréal: The beauty of supply chain digitalization.

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Authors:

Ralf W. Seifert

Professor of Operations Management at IMD