Estée Lauder's seven year SAP inventory roll out boosts its digital ambitions

Profile picture for user slauchlan By Stuart Lauchlan August 17, 2014
Summary:
Cosmetics brand Estée Lauder's completion of a 7 year project to implement a single SAP Supplier Managed Inventory (SMI) across 38 countries will help fund digital ambitions.

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Global cosmetics brand Estée Lauder's completion of a seven year long project to implement a single SAP Supplier Managed Inventory (SMI) across 38 different countries is already paying off in terms of advanced orders.

The firm has replaced 50 legacy order processing systems and merged its order processes onto a single SAP Sales Proposal Manager (SPM) that customer service representatives log into to manage transactions.

Estée Lauder CFO Tracey Thomas Travis explains:

Last month's SMI implementation was the last major wave of a long term project that has enabled us to standardize our key business processes around the world. This was an enormous undertaking and our teams executed it superbly.

SMI gives us greater consistency and execution, enhanced visibility of information for improved management of inventory and expenses, and process scalability to support growth.

Work is still ongoing to hone the new system, she adds:

As the major deployment phase has ended, we’re focusing our attention on realizing the full value that SMI can deliver through better process adoption and proficiency with using the new technology to drive many efficiencies across the organization.

Some of the key areas of opportunity we’re addressing include improvement in forecasting capabilities, which should result in reduced inventories, fewer sales returns and less obsolescence, improved management of the total cost of global and local launches and better enabling our AMP effectiveness, additional indirect procurement savings and improved customer service to name a few.

In addition to these planned four benefits, we certainly expect to uncover additional areas of opportunities as our global understanding and visibility of SMI prophecies and SAP technology increases. Importantly we have a governing structure in place to support our initiatives and ensure we have continuous cost improvement every year through leveraging the SMI capability.

That said, the firm already attributes part of a 7% year on year increase in orders to the SMI implementation, although according to CEO Fabrizio Freda, the advanced orders processed to date may be at least in part attributed to retail client scepticism about the new system:

They decided to order more than we originally estimated because it's their decision how much they want to assess the risk of being under lever under-shipped in the months of July and they want to protect their business. because the business is doing well and so they want to protect and avoid the risk of outer stock because of SAP.

As you know many companies in the past had issues in executive SAP meaning that they have some periods where they cannot ship, cannot deliver product after their implementation. So that's why our customers sometimes decide to protect themselves because they have this bad experience from the past.

We didn’t give so far any issue to them so that we are really executing SAP with excellence and I believe we are one of the best companies in the way we are executing SAP and avoiding the issues or volatility and consistency that come from the implementation in other cases.

Digital ambitions

The savings to come from the SMI will be invested back into expansionist areas of the business, such as digital innovation. Freda argues:

We are number one in prestige beauty in the US and in the UK and intend to grow our share profitably by farther optimizing our brand portfolio sourcing consumer from mass and expanding our digital presence. Multichannel consumers are a growing opportunity and we will enhance our efforts to appeal to them.

Our ecommerce business has grown tremendously as we plan to keep up with exceptional pace. In fiscal 2015, we plan to bring more brands online in several new markets. We are building on the success of Clinique and Estée Lauder on Tmall in China by opening Origins there later this year and looking at more brands to follow.

We also plan to expand our mobile capabilities. Our online business grew more than three times the rate of the total company and mobile is the fastest growing component of e-commerce with its sales having doubled last year.

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Fabrizio Freda

While the MAC range is leader in terms of m-commerce activity to date, Group President John Demsey cites Estée Lauder’s Smashbox offering as a case in point:

Smashbox occupies a unique space in the industry with its photo studio positioning. Smashbox resonates well online and with millennials. The brand won a clear for best digital social campaign and was an honorary for the top two online awards. Smashbox is a perfect fit for the specialty multichannel and remains a clear leader in makeup. It's one of the top three brands and primers and BB and CC creams in North America prestige beauty.

This year we plan to continue this trend with exciting launches in contouring, primer and eye shadow. Smashbox also has been opening new international markets during the past two years and there is significant expansion potential to come including strong growth in the European region. We also have had great strength in makeup within our multi-category brands.

He also points to the firm’s makeup artist brand Bobbi Brown as a good example:

It has a luxury and classical positioning that helps women look like themselves only better, prettier and more confident. The brand has been making great strides in the specialty-multi channel and plans to expand its distribution there over the next several years.

Bobbi’s makeup lessons in departmental stores and freestanding stores differentiated as a teaching brand and are a strategic service that drives significant traffic and loyalty. Next year, Bobbi will build upon this service with locally relevant menus by market and makeup lesson videos featuring multi-ethnic models.

Bobbi is also rapidly and successfully embraced the digital world. Its ecommerce site in the United States is its number one door worldwide and that it's accreted an outstanding social media results with 72 global digital platforms that are followed by a subscriber base of 4.5 million consumers.

The brand has been number one rank branded beauty channel on Youtube with videos that have been viewed globally 10 million times.


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Overall Demsey argues that one of Estée Lauder’s greatest strengths is building brands and exploiting multi-channel technologies to promote them:

They’re digitally savvy and less dependent of traditional advertising. They expressed their authentic equity through an editorial social media freestanding stores and luxurious counter services. We will continue to partner with department stores to elevate the experience with our brands to keep them fresh while selectively broadening their geographical and categorical reach and potential.

We have channels like online, travel retail, freestanding stores, which are driving the business at double digit and other channels like our core department stores which are driving at single digit in this moment.

Certainly Freda sees digital investment as crucial and particularly the cross-sell opportunities between offline and online:

The digital area will strengthen our relationship with our retail partners and we are constantly working side to side with them to support their ecommerce and their digital expansion of activities. So all the customers, which have the retail partners which have the best dot com activities, are also the ones which deliver the strongest brick-and-mortar sales.

There is a clear strong connection between success of the retailer online and success of the same retailer in brick-and-mortar. So we are participating to the development of the business of our retail partners both in brick-and-mortar and online.

We’re very supportive, including putting our capabilities in cooperating with them in developing this business because this omnichannel approach that many of the global retailers that we partner with are taking, I believe is the future. It is the right future.

 

Disclosure: at time of writing, SAP is a premium partner of diginomica.