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BUILDING ON SUCCESS: COLLABORATIVE DESIGN
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Avon plans to extend the concept of collaboration throughout the supply chain organization. The company recently conducted a collaborative design workshop that included suppliers, a design firm, and representatives from marketing and the supply chain 40 people in a room trying to design a
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Strategic Supply Chain Management
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product. Within three days the team had designed the concept for a new package that was stunning from marketing and design perspectives but also minimized costs at each step of the supply chain. A key part of the process was getting everyone s input. For example, the back of a truck can hold only so many pallets, but the right box and bottle designs can optimize the number of boxes in each pallet and the number of bottles in each box. If Avon could increase the number of boxes on each truck by 20 percent, the company would save hundreds of thousands of dollars in transportation costs each year. Only the person who loads the truck every day knows these things, but in the past that person s knowledge wasn t considered in the design process. Instead, product costs were locked in early by someone making isolated decisions in the design studio. Explains Watson of the new collaborative design approach, This isn t about any particular area of the supply chain. It s about making sure that when we design products, we design them with everyone in mind. The workshop was a major investment of time and people, but Avon expects to save several million dollars over the next few years because of designing the product right and another $50 million with ongoing use of the strategy.
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REORGANIZATION AND THE CHANGE-MANAGEMENT CHALLENGE
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Once the supply chain processes were redesigned, Avon turned its attention to the new organization and restructured it around the four key processes of plan, source, make, and deliver. Now, instead of a large number of people from different functions and countries reporting to him, Kitchener has just four direct reports the four process heads. Now we have four megaprocesses and four people empowered to drive that across Europe, says Kitchener. As the person heading this up, I cannot tell you how much less complex it is. It s a far simpler model to manage than the old model. One of Avon s biggest challenges has been making the concept of a process-driven, collaborative, regional organization in Europe work well on a day-to-day basis. The redesign completely changed the roles and responsibilities of the general managers across Europe. They once managed the inventory in their own markets, for instance, but now that product labeling is postponed until shipment, it no longer makes sense for the GMs to own inventory. Instead, Avon holds it farther back in the supply
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AVON PROFILE: Calling on Customers Cost-Effectively
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chain to better allocate it to where demand is greatest. As a result, the metric on inventory days that used to be the general managers responsibility now belongs to the supply chain organization, along with the other dayto-day supply chain activities. In the new organization, the GMs are primarily responsible for sales. This change, combined with the need for people to work cross-functionally and collaboratively, has been hard to implement because of the major behavioral changes involved. Notes Toth, It s a cultural change a cultural revolution, really. Avon did a lot of work to define primary responsibilities, shared responsibilities, and the supporting metrics. The transformation team realized that a regional, process-based organization demanded very different metrics than a country-based, functionally oriented organization. Setting up metrics early on and monitoring them often were critical to success and helped keep everyone focused on what was important. These had to be tangible metrics such as operating margin, service improvement, and inventory levels metrics that linked back to the original business case, metrics that people could be measured against. Many of the old metrics were backward-looking. Inventory days, for instance, is a good end-of-month measure, but it doesn t help with dayto-day operations. Avon developed metrics that are more operationally focused and can be influenced in the short term. As an example, the company broke down the key drivers of inventory levels. One was supplier lead time, which Avon has taken steps to shorten by giving certain suppliers access to production schedules and making them responsible for delivering materials on time. By clearly communicating the redesigned structure and accountabilities and defining new performance metrics, Avon began to move the new supply chain organization forward. Says Toth, Once you change the roles and responsibilities and set up clear KPIs [key performance indicators] for individuals at the country level and at the regional level, it starts to become institutionalized. Education and training were another critical piece of Avon s supply chain transformation. The company quickly saw that the skill levels in the organization had to be upgraded. Avon analyzed all the critical jobs in the new supply chain and the competencies needed to do those jobs. To fill the gaps, Avon partnered with Cranfield University, one of the leading supply chain business schools in Europe, to develop a customized curriculum. Avon put 75 of its key supply chain associates through the program and offered a shorter version to the senior executives who weren t involved in the redesign. To introduce new thinking, the program
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