Like the industries themselves, logistics has continued to evolve. It has moved from traditional processes focused on delivering the right products in the shortest time and at the lowest cost, to an increasingly complex and intelligent network of communication, management, and control with real-time visibility over the entire chain, thanks to more advanced technological tools and information systems.
This has enabled its next evolution: the extended supply chain, which transcends a company's own value chain to include all links, from suppliers of raw materials and services to customers and customers of the customers, that is, all players involved in the flows and interactions of the entire chain.
It is therefore a shared chain, in which the supply, manufacturing, sales and distribution processes are interdependent and driven by the end user, and in which the information generated by each player facilitates the operation of other links in the chain, benefiting everyone, so it is essential to generate trustful relationships and collaboration between all the players in the chain.
This, of course, requires technological tools for real-time monitoring and process management, so that customers and suppliers can integrate their own systems to enable a complete view of the entire value chain and better synchronize supply, demand, and information and financial flows.
The extended chain in cosmetics and personal care
The cosmetics sector, in particular, is a great example of this, once companies make decisions based on where they are at the extended chain, and the flow map and value creation in it. In fact, the main innovations in this sector in recent years have been carried out more in its extended supply chain than in the companies themselves.
The cosmetics sector must face complex challenges, such as a demand that, by its nature, tends to be extremely volatile, fluctuations in the price of raw materials, the incorporation of new processes and new technologies, the assimilation of novelties and fashion trends, and, of course, long-term sustainability. All this with more demanding consumers.
Moreover, it is a mature market, and so its success and growth can only be sustained through innovation. All these factors have greatly boosted the constant innovation of its extended chain, moving towards more flexible transportation solutions, and an integrated and decentralized logistics, from raw materials to distribution and retail channels.
It is a first-level industrial and economic sector, with a huge and complex market, generating more than €300 billion worldwide. Europe is the largest cosmetics and personal care market, followed by the USA, China, Japan, and Brazil. To give an idea, Europe employs more than 2 million workers throughout the supply chain.
In terms of products, skin care is the leading segment, followed by toiletries, hair care, personal care products and fragrances (a sub-sector in full growth thanks to new markets such as Asia), and finally, decorative cosmetics.
Cosmetics and personal care distribution
With such a diversity of products, a high degree of specialization and different ways of distribution are required, so these products reach the final consumer through a wide range of channels, according to the product type and target audience, which can be classified as follows:
- Selective. Large groups that own licenses, brands, fashion, and luxury leaders that are connected to fashion.
- Mid-market. Specialized stores, mono-brand stores (which often market their own cologne brands, for example) and a great portion of the e-commerce (which has increased in this sector at rates of 15 to 20% in the last years), based on the concept/product
- High consumption. Supermarkets and some single-brand stores, characterized by low cost.
In general, the cosmetics and personal care value chain can be divided into five levels:
- Suppliers. At the first level are the inputs to production by companies that provide the ingredients and raw materials. From those that cultivate aromatic plants and extract essential oils, to those that produce synthetic chemical products, alcohol, etc.
- Manufacturing. Here are included the suppliers of supporting products such as glass, packaging, plastics, caps, or services such as design and marketing.
- Large-scale distribution and wholesalers. Companies involved in the wholesale distribution of perfumes and cosmetics.
- Sales services and specialized stores. Individual vendors, such as beauty salons, department stores, online stores, and drugstores, are included in this category.
- Consumers. The end market and its several segments, the last link in the value chain.
The case of Mexico
Since the Porfiriato and its French wave, when the first department store was opened in Mexico, El Palacio de Hierro, cosmetics has been positioned and maintained until today as an important sector in this country, which is, by the way:
- The second largest Latin American market in the cosmetics and personal care sector (only after Brazil)
- The world's third largest producer (after the United States and Brazil).
- With an estimated value of 198 billion Mexican pesos
- With an annual growth rate of 4%
- Which exports mainly hair care and cosmetic products to more than 100 countries.
- With a 70% retail marketing (having El Palacio de Hierro, Sears, and Liverpool as leaders), in addition to supermarkets, convenience stores and drugstores, and other 30% through channels such as spas, internet and estheticians.
The Mexican market is led by:
- Mary Kay, with 19%
- Natura with 11%, and
- L'Oréal with 10%
Its main affliction: counterfeiting
- Up to 90% of cosmetics sold online are counterfeited.
- 1 in 4 people buy cosmetics, lotions, and perfumes in the informal market.
- The illegal market responds to 5% of the industry
The logistical challenges of the cosmetics industry and the innovation to solve them
Like many industries, cosmetics is also facing changes brought about by consumers moving to digital channels. For example, e-commerce sales in the U.S.A. are increasing by almost 20% annually, while in physical stores the increase is only 1-2%.
In addition, consumers today are looking for more than just the product they are paying for: they want brands to be committed to the environment (and, particularly in this industry, to animal rights and sustainable, waste-minimizing production), they want transparency, they expect much greater speed, and customization as well.
All of these new demands are, at the outset, driving faster and more frequent shipments to meet customized retail demand, and are transforming industry supply chains, leaving behind traditional chains whereby raw materials are received, products are manufactured, distributed, and finally purchased.
New full chain traceability systems are providing a chain transparency and viability solution, while flexible, intermodal transportation solutions, along with new, more effective distribution points such as microhubs, and technology for more efficient route planning, are addressing the need for greater speed.
It is also responding to the need for more flexible warehouse management and innovative, IT-supported tools for more optimal production planning in the face of demand volatility.
And finally, innovative systems such as SRMs are providing segmentation, identification, definition, and automation of market changes in the face of the individualization and customization of beauty products trend.
In other words, technology and innovation from chain players and logistics service providers are helping the cosmetics industry to reach the next level in its evolution and keep up with consumer expectations.
- Mexican National Chamber of the Cosmetic Products Industry (Canipec)