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Innovation and extended supply chain: Cosmetics and perfumery (& 2)

1. Mature market: Innovation.

Europe and the USA are mature and stable markets in terms of consumption, but with different developments depending on the segments and marketing channels. They show moderate growths on average, but continually generate changes and opportunities in new segments and in the analysed supply chain, with different ways of reaching the final consumer.

It is also an increasingly globalized market with strong export/import amounts between countries.

The Asian markets are those that can present stronger growth in the coming years, especially China and Japan, as well as South America.

As mature markets, they can only be addressed and maintained successfully bringing some innovation.

Most innovations currently focus on:

  • Launching of new products. It is done continuously. In this case it can be both technological innovations, basically in raw materials and processes, as well as design in perfumes and fragrances, brand or perfume creation, suitable for a subsegment or consumer typology. On the other hand, there are perfumes with a long tradition in the market with nearly 100 years since its launching and toilet waters with more than 100 years.
  • Innovation in the supply chain. Positioning differently in the market, segment or situation in the extended CS. Innovations in the extended supply chain occur from raw materials to distribution channels and commercial sale to the public.
  • Innovations in the value proposition to customers. It can be a change into a new value proposition for the brand, to consolidated or future customers, or to a new segment.
  • Do things differently. Changes in internal processes or relations in the extended SC. Including changes in the marketing and sales processes.
  • Change a certain paradigm. New “rules” in a certain market, category or segment.

2. Entry barriers

As a mature and globalized market, the fragances & perfume market has strong barriers to entry, especially in the areas of marketing and supply chain.

As an example, in the selective channels, the following barriers may exist:

  • Brand and image
  • Investments in advertising and promotion
  • Designs
  • Partnerships and innovations in the supply chain
  • The association with other segments of fashion and luxury.

In other channels, such as ‘Mass Market’ and ‘low cost’, the following would also be important:

  • Investments in facilities
  • Distribution systems.

3. Marketing

The next graph shows the possible relationships that are considered in the preparation of a marketing plan. Relations that the fragrances and perfume sector may have with other sectors and that can allow to establish alliances and collaborations.


Source: Own elaboration

4. Technological innovation

The 21st century will represent a new horizon for scientific innovation in the cosmetics and personal care industry, including perfumery.

Some scientists are turning to traditional substances to create new formulations.

In perfumery the main improvements in analytical methods allow to deepen more in the knowledge and use of natural ingredients.

At the other end of the scale, materials at the molecular level (nanotechnology) are also being used to develop new generations of products, not only for cosmetic products, but also for medicines, electronics and telecommunications.

Consumers are driving innovation

Ultimately, it is the desire of consumers to obtain new, better and safer products, manufactured and distributed by responsible and dynamic companies, which drives the need to constantly innovate.

The expectations of the consumer are oriented by more general factors, which have to do with cultural and social changes.

Although the world is increasingly interconnected, paradoxically it is also increasingly local and individual: consumers increasingly want personalized products and services.

Consumers are also increasingly aware of the environment and the social and ethical ramifications of consumption and production. They expect companies to share their concerns, which means that the industry must commit to a responsible use of resources in development and production in all value chains, which leads to a new level of innovation in all areas of industry development.

Partnerships with other stakeholders are key to:

  • Respect the consumer safety regulations.
  • Ensure an enabling framework for innovation.
  • Adapt to an economic activity marked by omnichannel business environment.
  • Promote international regulatory convergence towards a harmonization of cosmetics regulations, based on best practices.
  • Promote sustainable consumption and the best sustainable business practices. 

5. Innovation in the supply chain

Outlining the entire extended supply chain in the most detailed and accurate way allows companies to better understand its complexity and helps to take decisions about our own position and the degree of influence we can have.

Source: Own elaboration

It also serves for other decisions regarding where we can innovate, what is the focus on the creation of value, what margins are being obtained in each step, etc.

An example of a concrete way of working on these types of issues can be seen in the following image, in which we worked in a specific company.

It is about asking questions, and the appropriate questions to our concrete case, about the relations that are established in our extended supply chain.

Based on this, and according to the answers, we can design models and alternatives on innovation and decisions about marketing, production, etc.

Once we have clear innovation strategies, and marketing, production or distribution plans, we can use some classic media to implement our projects or include innovative tools that have been consolidated in recent years.

Artificial intelligence (AI), Internet of things, (IoT), advanced analysis and blockchain are some of the trends that drive competitive advantage in supply chains.

Artificial Intelligence

Some examples: There are applications based on machine learning algorithms to analyse the needs of skin care. The application performs a facial analysis without makeup and recommends products based on personal data and best practices of experts. The application enabled by artificial intelligence (AI) also collects purchasing behaviour data directly from the consumer and uses it to determine the demand and recommend specific products.

The same could be used for perfumes and fragrances based on aspects of consumer preference, sensations or motivation.

Other AI-based platforms determine what is called a “taste DNA,” a digital flavour identifier that connects consumers with food. Through this, a demand is detected by better understanding the client’s preferences.

This information can be made available to the extended supply chain (suppliers, food manufacturers, etc.) for a better response.

These are simple examples of how AI, can significantly improve the ability to detect and shape innovation, and is one of the main trends that impacted supply chains in 2018.

It is always advisable to determine the risk culture of our company in order to adapt its willingness to explore and adopt emerging offers. It is also advisable to start small projects to explore whether the potential benefit of the trend justifies the risk or requires investment.

Advanced analysis

The advanced analysis deals with the systematic use of multivariate and big data.

Advanced analysis allows companies to proactively take advantage of future opportunities and anticipate future adverse events. Analysis can improve decision making in functional areas such as supply chain planning, procurement, logistics, transportation and can be implemented to improve end-to-end supply chain performance.

Processes that previously depended on human judgment can be enhanced with predictive and prescriptive analyses that could have a significant impact on future demand forecasts both in the supply chain and in user preferences.

Internet of things (IoT)

The adoption of the IoT is growing in specific fields of the supply chain, but rarely as part of a complete process in the end-to-end chain.

One exception is the aeronautical industry, where aircraft have thousands of sensors and data is used throughout the extended supply chain.

Other potentially powerful use cases in the supply chain are preventive maintenance, procurement, manufacturing, logistics, demand management and services. This means a better use of assets, more time of activity through ‘monitoring’ and remote maintenance, better customer service by better understanding their behaviour and needs, and proactively responding to demands.

Some current uses of IoT in the supply chain are autonomous mobile robots and autonomous vehicles, which are mainly run in warehouses and logistics.

It’s much more extended in the areas of production and maintenance with all kinds of sensors and programmable devices.

Conversational systems

The conversational systems, which today are implemented and we are more familiar with, as virtual personal assistants and chatbots, are also taking the interaction to a next level with the addition of conversational commerce.

They can manage questions about aspects of knowledge and offer solutions without the participation of human agents.

Conversational systems allow transactions, manage payments, guarantee delivery and customer service.

Robotic process automation.

Robotic process automation (RPA) allows supply chain leaders to reduce costs, eliminate key errors, accelerate processes and link applications. For example, an organization may want to work with structured data to automate an existing manual task or process with minimal process reengineering.

6. Focus on the customer experience

The client’s experience can be defined as the set of perceptions and feelings of the client caused by the punctual or cumulative effect in the interactions with the personnel, products, services, communications and systems of a supplier. It can also be associated with a brand or a specific shop, commerce or chain.

The companies, which have practiced this type of analysis, recognize that their clients are very influenced by their experiences in the supply chain.

Some supply chains are using digital systems with customers and products to better understand the how is the practical use of their products or applications.

The experiences and the impact on the users are summarized and analysed in an orderly manner to predict possible changes in the habits of future demand and respond more quickly to problems, even anticipating them.

Scalable digital supply chain capacity

After a few rounds of experiments, the experience of some leading companies allows them to scale some more viable digital supply chain solutions in factories, warehouses and offices. While automation is more common in manufacturing and logistics, there has also been significant growth in digital customer service. This includes RPA Robot Process Automation) in the order cycle and the use of customer service chatbots with the use of artificial intelligence (AI)

Moving to circular supply chain designs

Sensitivity to the environment and to sustainability in general is a growing value in advanced societies. This has already changed the way we think about generalized consumption, so that recycling and reuse for a better environmental sustainability are valued as positive.

Some advanced supply chains focus more on the life cycle of products to understand their total impact and operations throughout the value chain.

This type of action, known as ‘circular economy’ is increased and we can see how an initially altruistic desire to do the best for the environment and society, is transformed and combined with a desire for innovation and continuous differentiation in competitive markets.

As a result, the recycling and reuse of old components in new products is increased and the life cycle of the equipment is extended.

This also is impacting in the sector of perfumery and fragrances because of the high value of elements of packs, bottles, packaging and design elements that are used in all cases.

References:

Innovative Methods in Logistics and Supply Chain Management. Thorsten Blecker, Wolfgang Kersten and Christian M. Ringle (Eds.). ISBN  978-3-7375-0341-9

PwC and the MIT Forum for Supply Chain Innovation. Research study by Mark Strom et alt. for PwC.

Innovation and Sustainability in the Supply Chain of a Cosmetics Company: a Case Study. André Pereira de Carvalho & José Carlos Barbieri. Journal of Technology Management & Innovation. ISSN: 0718-2724

Cosmetics Europe. European trade association for the cosmetics and personal care industry. Various reports for 2018. https://www.cosmeticseurope.eu

Author

Francesc Guell is the owner of this site. He was CEO and director of international companies in specialty chemicals and pharmaceuticals. The last 12 years was associated with international consulting groups, providing advice and support to businesses on topics such as innovation and agile innovation processes, operational excellence, knowledge management, change management, strategy and integrated business management. Currently creates and presents courses and workshops on these topics. He graduated as a chemical engineer, postgraduate from ESADE Business School in Business Administration and Master in Knowledge Management. He participated in numerous programs, seminars and ESADE, IESE, EADA, APD and MCE (Management Centre Europe). He is author of articles, presentations and courses on innovation in strategic management, integrated business models, knowledge management, performance measurement, change management and excellence in business processes. See more in: Professional Profile

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