By Tom Steinert-Threlkeld  |  Posted 2001-10-29 Print this article Print

For 115 years, Avon Products has been employing personalization--in the form of its ubiquitous Avon ladies--to sell everything from cosmetics and fragrances to sundresses and bug repellent. Yet when the Web, with its ability to let companies interact one-

: Streamline the Supply Chain">

Goal: Streamline the Supply Chain

Avon had other automation challenges on its hands. Like most major corporations, Avon was dealing with multiple supply chains for different cosmetic, retail and collectibles lines in different countries. On top of that, much of the company's demand forecasting and inventory management was handled manually. In cases where there was some level of automation, custom-coded applications were running on mainframes and were seldom linked to manufacturing systems, order-management systems or other related warehouses of data.

When Avon in 1997 kicked off Phase One of its overarching effort to redesign its business, two of its biggest goals were to upgrade its order-management system and automate its relationships with vendors, called supply-chain management. Avon projected that the first phase of its BPR effort would save the company $400 million over three years, half of which Avon said it would reinvest in building its representative base.

In September of 2001, Avon CEO Andrea Jung publicly stated that Avon did, indeed, reach its $400 million savings target. Avon achieved its BPR Phase One goal of streamlining the number of products and brands it offers its reps worldwide, she said. It made good on its commitments to reduce the number of suppliers it used, automate its call center in Springdale, Ohio, consolidate its returned-goods centers and cut staff where it could. But Jung said the company had not gotten far with its supply-chain initiatives.

"I certainly wouldn't call the first $400 million low-hanging fruit," Jung told analysts at a Prudential Securities conference in Boston on Sept. 5. "But a lot of that was margin expansion and tightening expansion controls. We didn't really get at the true end-to-end processing—with the exception of the beginning of supply chain in the U.S.—and the opportunity to transform the enterprise-wide processes that have been in place for decades and decades."

If several former Avon IT executives are to believed, Jung was being generous. While Avon is claiming that it saved over the past three years a total of $56 million in streamlining its product and material suppliers, and $22 million on improving its transportation management processes, it has done little to actually automate its supply chain, as it promised it would in 1997.

Six years after the company began deploying the first modules of Manugistics Group's demand-planning software in China, forecasting sales remains largely a matter of manual processes and conventional brainwork. Using a combination of automated systems and manual processes, Avon projects how it expects a new product to sell two to three weeks out, based on historical demand and trends. But Avon executives are the first to admit that forecasting still is based on judgment, as much, if not more, than on computerized calculations. And that might not be such a bad thing, since forecasting using computers is still an imperfect science.

Avon discovered just how imperfect demand-forecasting software is, as it attempted to roll out more of Manugistics' demand forecasting, transportation and fulfillment modules worldwide, according to former company technology executives. Two years ago at Christmas, Avon's supply chain problems were illustrated rather poignantly by an incident that remains fresh in the minds of a couple of those execs.

Manugistics' Networks Demand software was showing that Avon reps wouldn't sell many Pokémon watches—at most, a couple of hundred thousand worldwide. But 1998 to 1999 was when the Nintendo video-game characters were the hottest things since Barbie dolls. Executives attributed the resulting shortfall to a problem with the feeder data upon which the Manugistics' software was reliant in order to generate forecasts. This feeder data, stats on fast-moving products, likely sales, and other related information, were collected by Avon's various legacy systems and should have provided the kind of trend data that would allow Manugistics to predict future sales patterns.

"Manugistics should not have become the de facto standard at Avon," said one of the former Avon IT officials. "They didn't know where they'd get the information needed to feed into Manugistics. Basically, the feeder data was broken. The data was there, but it wasn't integrated into Manugistics and wasn't feeding into it in a timely manner."

Edelman, who was heading up the company's supply chain efforts at that time, was not amused, former company executives said. Ed Woroniecki, the Avon executive who recommended Manugistics, abruptly left the company. Some former Avon technology staffers say that Avon decided against renewing his contract. Woroniecki did not return requests for comment.

Tom was editor-in-chief of Interactive Week, from 1995 to 2000, leading a team that created the Internet industry's first newspaper and won numerous awards for the publication. He also has been an award-winning technology journalist for the Dallas Morning News and Fort Worth Star-Telegram. He is a graduate of the Harvard Business School and the University of Missouri School of Journalism.

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