This article was originally published on Forbes by Steve Banker.

Belcorp Has Driven Significant Cost Savings Using a Supply Chain Design Solution

When companies implement enterprise software solutions, they often label that implementation as being part of their company’s digital transformation. But implementing new software does not digitally transform anything if the people that are supposed to use that software cannot do so effectively. Belcorp has actively worked to be a leader in ensuring that their people can effectively use a complex type of software known as supply chain design. Using this software effectively is about more than the functionality. It requires a company to further leverage the supply chain design philosophy.

I recently talked to Nicolas Frasquet and Germán Ricardo Rodríguez Parra of Belcorp. Mr. Frasquet is the executive director of corporate procurement, although his responsibilities include a much broader set of supply chain responsibilities than just sourcing. Mr. Rodríguez is the operations strategic planning manager and he leads a team focused on the company’s supply chain design. 

Belcorp, a company with Peruvian origins, manufactures cosmetics and personal care products for women in 13 nations across South, Central, and North America. It offers fragrances, facial and body treatment products, makeup products, and personal care products. The company offers its products primarily through 800,000 beauty consultants; this direct channel generates most of the company’s roughly $1 billion in annual revenues. In recent years, it added ecommerce and retail channels to the mix while accelerating the digital transformation of their direct sales channel. The company sells their products across three well-knowns brands targeted at different demographics: ésika, L’Bel and Cyzone. 

Belcorp, like most companies in their industry, has quite a complex supply chain. In Belcorp’s case they have four factories located in Colombia, Mexico, Peru, and Ecuador. Production flexibility is limited; none of these factories can make all the company’s more than 1,500 stock keeping units. The company puts out catalogs every 3 weeks; each containing many new products. During a typical year, the company introduces more than 150 new products. These new products generate up to 30% of the company’s revenues. Forecasting beauty products, which are susceptible fickle fashion trends, is difficult. But forecasting new product demand is even more difficult. 

Logistics can be a challenge. In some of the larger cities they serve there are addresses for all homes. But in rural areas, there are often no specific addresses. Rather, directions are used. For example, go to the Walmart, turn right, and it is the third house on the left. For consumers in metro areas located close to their factories, there is a one-day lead time. For rural areas, the lead time can be as much as five days. 

Additionally, traditionally beauty consultants sold products and the company shipped products to the consultants. The consultants then became responsible for delivery to their customers. That is changing. The company is giving their consultants mobile solutions that allow their consultants to better manage their business. These solutions (an ecommerce-like platform called ‘My Online Store’ and a digital interactive catalog) allow the company to ship products directly to consumers. 

The pandemic has increased complexity. It accelerated the move toward direct shipments to customers. Further, forecasting became more difficult. Sales of some products decreased greatly, while sales of others boomed.

Belcorp seeks to mitigate this complexity by using a supply chain design solution from Coupa. A supply chain design solution examines business decisions a company can make in a strategic planning horizon – from six months out to five years or more. The solution can answer questions like where should new production or distribution capacity be located to optimally accommodate anticipated growth in demand? What factory should make a new product? How will total landed costs be impacted by adding a new supplier? How do we best handle surging transportation costs? What will the total costs be associated with different green strategies? 

A supply chain design solution examines the trade-offs between sourcing options, production and distribution costs, inventory carrying costs, transportation costs, customs and duties processes to come up with the total costs associated with achieving a targeted service level for a particular strategic option. The supply chain design solution is a digital map – or digital twin – of a company’s supply chain. This digital twin contains network costs – the inventory carrying cost is X for this product, by Y for this one. It costs A to produce this stock keeping unit (SKU) at this factory, but B at this factory, and many, many other granular supply chain costs. On top of this cost network model, the solution allows for various scenarios to be kept and compared.

Belcorp has been working with supply chain design solutions for more than ten years. They started with IBM’s LogicNet solution. Coupat bought LogicNet in 2015 and Belcorp upgraded to the Coupa Supply Chain Guru solution shortly thereafter. 

Using network design solutions, the company saved millions of dollars based on better decisions on how to utilize their network. The chart above shows Belcorp’s total cost reduction percentage year by year. The cost reduction includes sourcing, customs & duties, transportation, production, and inventory holding costs. At this point, they do not include distribution costs in the model. 

In 2018, they implemented a Coupa inventory optimization solution. For Belcorp, this was a critical initiative to help them analyze the ever growing number of stock keeping units. They estimate that SKUs increased by over 20% over the last 3 years. Leveraging this solution for the last three years, Belcorp has successfully managed to reduce by nearly 25% their total inventory and by nearly 35% the dedicated safety stock, while improving overall service level by 6 points.

But the savings were not just based on optimization technology. They view the years 2018 and 2019 as years when the maturity with which they were able to use these solutions greatly increased. Coupa has developed a supply chain design maturity model. Belcorp is the top performing company in Latin America in terms of maturity.

Belcorp’s Performance on the Supply Chain Design Maturity Model

This maturity model is quite detailed. It examines the skills of the people on the team, the process, technology, and strategy associated with supply chain design. In each area there are from 30 to 70 criteria that are examined to help produce a score. 

While there are many criteria, in Mr. Frasquet’s opinion, a few things are critical. A company must have a dedicated team for supply chain design, this is not a side job where a project team is created to answer an ad hoc question that comes up. From a process perspective, an analysis is not enough. Once an analysis is completed, it must be shared with business leaders, decisions must be made based on that analysis, there must be a process in place to execute the decisions, and the results must be measured. But most fundamentally, a company must be data driven. Decisions must be made based on a thorough quantitative analysis. That must be part of the company’s DNA. Coupa helped accelerate the Belcorp’s ability to make data-based business decisions that span across the corporation. 

And supply chain design maturity does not just decrease costs, it can help a company respond with greater agility when disruptions – like a global pandemic – occur. Belcorp has certainly weathered the pandemic better than many of their peers in the beauty care products industry. Partly, this is based on Belcorp’s direct sales model which in turn is powered by several digital solutions used by their independent beauty consultants. Other beauty companies that sold their products through small cosmetic stores, saw many stores close and consequently suffered a significant sales hit.

But Mr. Frasquet points out their agility has also served them well. The company has had a total reset of their product portfolio, with an acceleration of the sale of personal care products while sales of makeup have greatly decreased. This was a severe supply chain challenge. But Belcorp largely managed to get back to historical total sales level once the worst months of the pandemic were behind them.

Many companies have purchased high end solutions and then driven those solutions like they owned a Volkswagen bug rather than a Maserati. Belcorp has not fallen into that trap and has proven that dedicated and skilled teams, robust processes, and a data driven culture are fundamentals in ensuring a sustainable digital model.