Logistics Management And Interface With Core Functional Areas: A Case Study Of L'Oreal Essay.

Logistics Management at L'Oreal

Question:

Provide more detailed discussion and in depth analysis with adequate referencing to the logistics concepts and models.
 

The term logistics is related with the physical inflow and outflow of goods and associated services that are beneficial for a company in terms of linking to the external world before and after the production (Kappauf, Lauterbach, and Koch, 2012). In current business environment, the main challenges faced by the manufacturing company are to produce good quality products and distribute the same to final consumer to respond to their changing needs. Effective supply chain management positively supports companies to ensure availability of right material in right quantity, at the right time, and at the right place (Israr and Gangele, 2013).  The main purpose of this report is to determine the areas in which the core functional domains and logistics could interface. In addition, this report also aimed to analyze the effectiveness of the current order cycle and inventory management. Concurrently, this report also provides suggestions to improve logistics management by applying the theories and concepts. The company selected for this report is L'Oreal.

L'Oreal operates one business  as beauty for more than a period of 100 years and it successfully developed its energy and competencies in this area (L'Oreal, 2015). The company provides its services to men and women worldwide by effectively meeting their beauty desires. In addition, the company is also committed to fulfil its mission and objectives in an ethical and responsible manner. Across the world, a wide range of outstanding brands are developed and marketed by L’Oréal through the use of highly diverged distribution networks (L'Oreal, 2015). It shows that in the success and the development of the company, L'Oreal's supply chain plays an important role. It is also found that around the main business sectors, the company's supply chain is integrated and structured. The company builds three logistics teams such as the sales logistics, industrial logistics, and international logistics to make sure about the effective supply chain management (L'Oreal, 2015). All the logistics teams consider various factors such as control of cost, service quality, productivity and quality improvement, and flexibility to ensure about the success in complex international environment. 

The interfaces between the inbound logistics or purchasing and the core functional areas such as production, marketing, and finance and accounting are increasingly become important for organizations in order to ensure firm's long-term business survival (Agrawal, 2003). The coordination among all these functions is also essential to maximize the total value delivered by the organization. In addition, it is also found that interfaces between the logistics and other functional departments is also important to ensure the optimum utilization of an enterprise's resources. For example, the interfaces between the logistics and the marketing function is important to make sure about providing final customer satisfaction. Similarly, to ensure the firm's growth and success, managers at L'Oreal might also focus on maintaining the interfaces between the logistics and other organizational functions (L'Oreal, 2015).

There are several areas at L'Oreal such as field warehousing, packaging, forecasts of demand, outbound shipping, and finished goods inventory and post sales parts support in which the logistics and the firm's marketing function might interface (Kappauf, Lauterbach, Koch, 2012). Additionally, to enhance the satisfaction level of end-consumers, the marketing function at the company can interface with logistics. For example, it is necessary that purchasing department has understanding about the needs of final consumers so that the supplier relationships can be developed accordingly to increase the satisfaction level (L'Oreal, 2015). Moreover, in areas like product mix, market research, pricing decisions and promotional activities, the marketing function might interface with the logistics. It would be helpful to ensure better information flow, improved packaging, customer service, and distribution channels.

Interface between Logistics and Other Organizational Functions

Moreover, in areas like in-plant warehousing, inbound transportation, raw material and work-in-process inventory, and scheduling of material flow, the logistics and the production function might interface (Sople, 2010). In this, the development of a common boundary between logistics and production function can be beneficial to optimize production run length as well as related warehousing costs  of storing the raw material, WIP and finished products (Rushton, Croucher, and Baker, 2014). It can also be stated that the interfaces between both can be beneficial to make more cost effective production at L'Oreal.

In addition to the marketing and production interfaces, the finance function at L'Oreal might interface with logistics in areas like budgets and allocation of resources (L'Oreal, 2015). It is because the interfaces support in making appropriate budgets for purchasing and allocate resources appropriately. Moreover, the development of common limit between the finance and logistics function can be beneficial to reduce inventory cost, packaging cost, lower production unit costs and meet effectively with different financial needs of the business successfully (Agrawal, 2003). The below diagram shows the interface between the logistics and other organizational functions:

It is clear from the above diagram that logistic function at L'Oreal might interface with marketing and production functions in areas like coordination, control conflict resolution, etc. It is also clear that all these functions might also interface with logistic functions to make effective communication link and request for logistic services.

It is analyzed that current order processing system at L'Oreal is effective and efficient. This success can be evaluated through the data that approx 67 % of UK's women use at least one L’Oreal product (The Logistics Business, 2016). The logistic business at L'Oreal has the responsibility to attempt a complete review of the process in which the company's luxury product division launched the new products as well as the handling process for sales orders. It is found that a world class consultancy team managed the logistics business at L'Oreal that has practical experience to undertake a detailed analysis and also understand difficult business system (The Logistics Business, 2016). It positively supports to improve the efficiency and the effectiveness of the current order processing system.

Moreover, it is also analyzed that L'Oreal analyzes key product information through Edicom's CRP flow, in which the main parameters are exchanged via EDI with some of the main trading partners (EDICOM, 2016). Such kind of analysis supports the company to automate the processing of effective provisioning orders as well as make sure about the proper supply at all times to efficiently meet the needs of each centre (The Logistics Business, 2016). But concurrently, it is also assessed that the previous order processing system was associated with some loopholes such as flexibility and suitability of current tools, and the speed at which sales order are processed. The consultancy team at L'Oreal positively supported to overcome all these issues and make the current system more effective and efficient.

It is also assessed that L'Oreal uses order management software, which help the company to provide up to date order information in one place that is accessible for each sales employees throughout the company (Nas?r, Süphan, 2015). The use of such systems supports the company in a positive manner to reduce time and cost related to order processing system. For example, it is found that in order to help both beauticians and representatives, portals which include electronic product catalogue to provide demo tips, product info, and training materials are built by L'Oreal (Nas?r, Süphan, 2015). These are beneficial to design and produce products that are demanded and expected by customers. It is because electronic product catalogue include detailed information about product specifications and also product images. Furthermore, it also supported L'Oreal to improve customers satisfaction level as well as customer base.

Effectiveness of Current Order Cycle and Inventory Management

Thus, it shows that although the current order processing system of the company is effective, however in today's global business environment, it is essential for the company to organize regular monitoring and reviews in order to maintain its effectiveness and efficiency level for long-run. It is recommended to L'Oreal that it should manage changes in current order processing system as per changes in the environment and technology development to ensure its long-term success.  Additionally, it can also be recommended that the company should regularly update its order management application to better serve customers through centralized order instrumentation (Nas?r, Süphan, 2015). It is also recommended that L'Oreal should effectively integarte the order management application into the order process to overcome issues related to speed and reduce delivery time. 

It is analyzed that after standardizing the raw material supply processes and packaging in Europe, a supply chain cockpit was developed by L'Oreal that considers organizational KPIs and targets. It is evaluated that as a part of supply chain information system, the cockpit is connected with production planning information among 13 European plants (Jacoby, 2010). Additionally, the inventory visibility of the cockpit was also extended by linking it to over 100 suppliers through the use of both direct data exchange and a web portal from the ERP system's of the suppliers to its own. The use of this supply chain cockpit is effective to efficiently manage the inventory across the L'Oreal different branches worldwide.

At the same time, it is also assessed that dissimilar to L' Oreal's competitors, the company does not implement the JIT (Just in time) stock management system (Sople, 2009). In contrast, it follows an approach to keep one month's inventory at the CFA level in the month's opening and another one month's inventory at the warehouse. It is evalauted that the use of this approach increases the company's inventory holding cost (Sople, 2009). In addition, it also causes improper forecasting resulting in lower performance as compared to other competitors. Thus, it shows that it is essential for L'Oreal to improve forecasts in order to reduce the company's inventory holding costs and increase the profit margins.

In contrary, it is analyzed that the use of advance technologies such as CRP/VMI supports the company to optimize stocks as well as good delivery at point-of-sale (EDICOM, 2016). Additionally, it is also assessed that regular analysis via EDI also positively supported the company to maintain adequate inventory levels. Concurrently, it is also found that L'Oreal also uses a supply chain index methodology, which is beneficial to estimate supply chain improvemet resulting in enhancing return on invested capital and manage the cost effectively (Cecere, 2015).

Concurrently, it is also found that L'Oreal developed a solution as integrated solution for industrial systems (ISIS), which is beneficial to effectively manage order management, inventory management and real-time material movement (L'Oreal, 2015). Moreover, it is also evaluated that the implementation of OM and ERP solutions together helped L'Oreal to reduce both risk and cost related to manage inventory. It is assessed that this system positively supports the company to effectively manage the current inventory level. But, at the same time, it is also evaluated that to manage a structured supply chain on an international level, it is essential that all the inventory management systems operate on real-time basis. Thus, it is recommended that the company should focus on aligning the needs of logistic function, manufacturing function and inventory management (Israr and Gangele, 2013). Additionally, it should also focus on implementing real-time applications that are available 24*7 in order to ensure the effective management of the inventory and ensure firm's long-term survival, growth and success. 

Conclusion

On the basis of above discussion, it can be concluded that the interface of logistics with other organizational functions is beneficial to make sure about the optimum utilization of resources, enhance total value delivered, and provide business growth and long-run survivability. It can be stated that to reduce the production cost, enhance customer satisfaction, make effective budgets, and allocate business resources effectively, there is need to set common boundaries for logistics and different business functions including production, marketing, and finance. Moreover, it can also be summarized that at L'Oreal in different areas like customer satisfaction and service, budgets, allocation of resources, and raw material handling, and other processes, the logistics function might interface with other functions.

It can also be stated that current order processing system and inventory management processes at L'Oreal are effective and efficient. In this, it is analyzed that the use of advance technological systems, software and solutions such as ISIS, ERP, OM, etc. assist the managers at the company in an effective manner to reduce cost, manage risk and gain other benefits. But, at the same time, there are some challenges such as speed, complex business nature and changing customers' needs. Thus, to effectively meet with all these challenges, it is recommended to the company that it should focus on implementing real-time application software that works 24*7 and supports in reducing the inventory handling cost. It is also recommended that L'Oreal should also implement continuous review and monitoring programs to ensure the success of order processing and inventory management systems and tools. 

References

Agrawal, D. K. (2003) Textbook of Logistics and Supply Chain Management. UK: Macmillan.

Cecere, L.  (2015) L’Oréal: A Beautiful Supply Chain. 

Israr, M., and Gangele, A. (2013) Logistics across the Functional Areas & Logistics Considerations in System Life Cycle. International Journal of Advance Industrial Engineering, 1(3), pp 48-53.

Jacoby, D. (2010) The Economist Guide To Supply Chain Management. Profile Books.

Kappauf, J., Lauterbach, B. and Koch, M. (2012) Logistic Core Operations with SAP: Inventory Management, Warehousing, Transportation, and Compliance. Germany: Springer Science & Business Media.

Nas?r, Süphan (2015) Customer Relationship Management Strategies in the Digital Era. UK: IGI Global.

Rushton, A., Croucher, P. and Baker, P. (2014) The Handbook of Logistics and Distribution Management: Understanding the Supply Chain.