Case Study Analysis- Digitalisation Of L'oreal's Supply Chain Assignment

Case Study Analysis- Digitalisation Of L’oreal’s Supply Chain

Chapter 1: Introduction

The digital world has been on the rise since the advent of technology The study here has taken up the issue of digitalising the supply chain by the international beauty brand named L’Oreal. The process of digitalisation of the supply chain has transformed the company and its functionalities to certain levels. The problem statement can be stated here by focusing mainly on the issue of supply chain digitalisation. The issue of technologically advancing the supply chain of the company itself can be identified as a business problem. As it often requires a complete transformation of a company which usually gives rise to innumerable issues as a matter. The study will also focus on the company’s rationale except for globalisation to digitalise its supply chain. The contemporary world has a complex market structure, and with the digital transformation of almost all spheres, the business market has also emerged as complexifying (Markoff, and Seifert, 2022). Thus this study will aim to understand another issue that arises from modern business issues, that is, the complexifying market. And along with that, the companies of the modern market are facing newer business challenges, and one such issue will be stated as a problem here. Sensing demands from the market, that is, specifically from the audience is one of the most significant challenges of the monopolistic market structure of the modern world. To reach a greater audience more holistically, businesses around the world are transforming their business model by customising and personalising their products according to the demands of the audience. This can generate primary and secondary problems in a stable business.

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The aims and objectives of the following research will be to identify and find the problems as stated above and to outline the solutions that have been adopted by the beauty brand named L’Oreal. The ulterior aim of this study is to understand the motives and visions of the company leaders and management for digitalising its supply chain. The purpose is also to comprehend the various methods adopted to transform its business models and functions to cope with the complex market. The report will now trace a background to the company and the main factors regarding such an immense transformation will be codified. The report will then move on to its plan of analysis by deploying resources of knowledge on the supply chain model, market analysis theories, and business theories. The report will then move on to the findings of the solutions that the company has deployed to understand the current position faced by L’Oreal in the market. The study will then provide a list of suggestive statements, or recommendations that the beauty company could have deployed as alternative solutions. A detailed action plan will be also attached to the study.

Figure 1: L’Oreal and their sales.

(Source: loreal growth chart jpg - Google Search, 2023).

Chapter 2: Case Brief

L’Oreal is one of the most famous beauty brands in the world, and the report here will thoroughly analyse the transformation of its business models and functionalities due to certain changes that were brought in its supply chain management. Digitalisation and technological revolution were the norm of the twenty-first century and the beauty world was also transforming itself accordingly. L’Oreal along with other brands in this industry has been transforming its business visions, besides developing its customer-friendly and value-fro-money products. Innovation and creativity saw a different meaning with the transformation of the business vision in L’Oreal’s field of work (Markoff, and Seifert, 2022). The company had begun to transform to a fully covered digital program, initially transforming the departments of sales, and marketing but the supply chain section gained prominence. This transformation gave rise to various other issues like the demands that come from the ever-complexifying market and the audience. The company in concern was founded in 1909, and since then development occurred in tremendous ways the company has generated more than twenty-eight billion Euros as revenue enlisting them in the “Forbes Fortune 500”. The company has its reach in almost one hundred and fifty nations of the world, employing over ninety thousand workers, with innovation and creativity as their basic business aim (Markoff, and Seifert, 2022). The company provides segmental brands of which luxury items, travel necessities, and drugstore products are all combined.

With this context, the case focuses majorly on the vision of CEO Jean-Paul Agon which solidifies the aim of the company to prosper in the digital transformation of various departments. Along the line of the vision, a digital transformation strategy advisor was employed and the company thus began to experiment with its sales and marketing segments. E-commerce and personalised interactions with customers were encouraged and adopted as a result. However, this issue that was brought by the advisor was frowned upon and it was believed that the traditional understanding of the market would change as a result. However, the company adopted various other means, by which the E-commerce goals were met to an extent of 80% in the year 2020 (Markoff, and Seifert, 2022). L’Oreal brought “Operations 4.0” launched to understand and innovate new technological outlets by which the company would be able to produce and distribute products. Frameworks were brought and “Beauty Tech” was launched to answer the query that is related to the implementation of technology particularly in the beauty industry (Markoff, and Seifert, 2022). The study here along with the above-mentioned themes has focused on the global market trends, by which business scenarios often transform. Personalisation of the customer experience while buying cosmetics and L’Oreal products was deemed essential in the modern market and the case study will also trace the problems and solutions adopted here to combat that.

Chapter 3: Business problems and Plan of Analysis

The modern business world has been rapidly transforming and these reformatory or evolutionary features can be considered the direct result of globalisation. Globalisation has brought the world and societies closer to each other with the help of technology and digital tools. Thus changes brought by globalisation can also be named as transformation brought by the overwhelming presence of digital tools and technological outputs. The business sphere, irrespective of the industry has also been impacted due to this evolution. Businesses of the modern and contemporary world have been adapting to various methods by which they were implementing technology, AI, and IT to meet their business aims and plans (Jevti?, Milovanovi?, and Tomi?, 2021). It is often seen that businesses transform their functional methods totally towards digitalisation. However, the path to holistically digitalise business programs presents difficulties and challenges to businesses. The report here will present the business problems as it was faced by the concerned beauty company, named L’Oreal while digitalising its functional segments of the supply chain, market analysis, and enhancing customer experience. The company has digitalised its supply chain, to make it more effective and agile. The initial business problem that was faced by L’Oreal was its 20/50/100 program, by which E-commerce, usage of social media, and personalisation of customer experience were aimed to adopt (Markoff, and Seifert, 2022). These business aims were created by an advisor in the context of the visions of CEO Agon.

Figure 2: Personalised Hair colours AI tools.

(Source: digitalisation of Loreal chart jpg - Google Search, 2023).

With the adaption of “Operations 4.0”, various other challenges came as well, like minimise the production time from eighteen months to six, manufacturing products to which the customer can relate, understanding the market in this difficult transformation by focusing on the demands of the audience, to manufacture customised beauty products, to improve supply chain by using data science (Queiroz et al., 2021). These are the identified challenges that L’Oreal faced, and these could have created problems in the management of the functionalities of the company. The challenges to transform the beauty industry to enhance the customer experience were only possible, as understood by L’Oreal, through the initiation of IT or information technology. However, the company faced a problem while initiating IT in its former business organisational structure. It was realised that IT would be risky, problematic, and challenging for “cost optimisation”. Thus another challenge that resulted from it was the need for a holistic organisational change. With organisational changes and transformation, another significant problem that L’Oreal was preparing to face was the waves of demands from the market. The fact that the audience of L’Oreal will now demand from both online and offline shores created a new avenue of issues (Markoff, and Seifert, 2022). The digitalisation of the supply chain, which could have resulted in the problem helped in the situation.

Customers’ demands and their behavioural patterns often transform against the business functionalities has been one of the greatest challenges for the industries. In the recent trend, customers usually want products that are “customised” as per their personal wants, demands, and requirements. The beauty industry is one of the leading ones as the receiver of this demand, for personalised beauty products from their trusted brand. Now for brands to provide value-for-money and personalised products, it becomes fundamental for technology to mediate such demand and supply problems (Schniederjans, Curado, and Khalajhedayati, 2020). Thus it came as a challenge to L’Oreal to provide and manufacture audience-centric customised services by which they would receive the right and perfect foundation and skincare for themselves. The proposed plan of analysis in this report will be fundamentally to identify the business challenges and solutions found by L’Oreal and to outline that work, data and information will be collected from secondary reading resources. Data from secondary sources will be taken into consideration here as it will provide a background for a better understanding of the business positions of L’Oreal from a diverse perspective.

For a better understanding, the report needs to explore the avenues of theories, models, and concepts regarding the supply chain, digital supply chain, and market analysis. There are innumerable theories regarding the concept of the supply chain, with different and prominent models of conceptualising supply chain management. The first one is named the “continuous model” and is used by the most famous and sustainable businesses around, as there is always a steady and continuous demand against which this particular supply chain continuously delivers. The second model is called the “fast model” which manufactures products and delivers them especially when it's trendy, which is, described as having a short product life. “The efficient model” is the prominent supply chain model by which famous business houses are supplying quality products in more effective methods through their enhanced logistics system. The “agile model” has four elements that are required for materialising this model, namely, “virtual integration, process alignment, a network base and market sensitivity”. The first element means the process of understanding customer demand, and the second one means how supply chain responsibilities are distributed among various others. The third element discusses the supply chain as a network of various other factors that play their role in management, and lastly, the fourth element tells the ability to transform the supply chain functions as per the demands of the market. The “customer-configured model” focuses on the production of customised products for the market. The last model named the “flexible model” addresses both the high and low demand gaps in the market, as per the requirement.

The study by Claudia Lizette Garay-Rondero et al., (2020) talks about the various components of the digital supply chain and its impact on industry 4.0. For transforming supply chain management, fast decision-making, enabling greater production, and enabling logistics digitalised supply chain is deemed essential. The study here provides a new concept of SCM and how it will benefit the new digital market has also been described (Garay-Rondero et al., 2020). There are innumerable resources through which one can find the organisational theories being implemented for analysing supply chain management. Among them “agency theory”, “resource-dependency theory”, “Network theory”, and “relational exchange theory” form greater emphasis. The first theory talks about the individual actors that play a significant part in the whole supply chain process and acts as agents. The second theory justifies the issue of collaboration as essential to growing in the market. The third one describes the whole network of customers, audiences, suppliers, employees, and leaders in a market. The last theory differentiates aspects of relational exchange and behaviour in the market. These theories of supply chain management in the organisational context will benefit the report to identify the measures taken by L’Oreal while transforming its supply chain and market target with digital methods.

As per the issue of the market, identified as problems, L’Oreal has to understand the market and the demands of the audience in a clearer manner. Understanding the market in a better way is required for deploying techniques. A proposed plan of analysis will require techniques like surveys, group observation, customer analysis, and interviews. These will provide an avenue to realise the various industry market analysis theories. To understand the market or audience, it is essential to deploy the theory of SWOT, which will emphasise the strengths, weaknesses, threats, and opportunities a business organisation can receive from the targetted market. This analysis provides companies to work accordingly to the demands made by the audiences. Market segmentation theory is another one that benefits companies to understand their customers by dividing them into four major segments.

Chapter 4: Analysis and Findings

This section of the study will outline the various solutions being taken up by L’Oreal to combat the problems that have been faced by it (Anitah et al., 2019). As business goals, it has been a constant issue that businesses take up challenging and competing business ideas to increase their competitive advantage in the market. One such can be seen in the brand of the concern that is, L’Oreal. The initiative of digitalising the sales and marketing section in the 20/50/100 segments has been frowned upon and as a result, it has been followed that there is a creation of a new organisation that performed outside the main body of L’Oreal. To make the marketing sector more successful the current position that L’Oreal has adopted is to partner up with famous incubators and accelerators to make the company a leading brand to innovate and create in the market and beauty industry. L’Oreal has also collaborated with tech companies like Modiface, Canadian-based companies that are developing their holds in the beauty industry with their digital knowledge (Markoff, and Seifert, 2022). The company initiated a program named “Operations 4.0” to handle and innovate the new digital world and the ways by which they can modify their supply chain accordingly, keeping in consideration of the technological transformation.

“Operations 4.0” brought new challenges to the company as described in the previous segments of the study (Wamba, and Queiroz, 2022). For instance, in the current situation the company to materialise the aim of lessening the product development time, has deployed the usage of “3D printers” to manufacture product prototypes more quickly. This has resulted in the creation of almost fourteen thousand prototypes in twenty-four hours in the year 2017. This process has been adopted in the manufacturing segments of the company for enhanced production. As sales and marketing were becoming digitalised in the process, L’Oreal has initiated creating “QR codes on certain items”, enabling the process of a personalised experience by the customers. The company for materialising “Operation 4.0” has been in search of high-quality suppliers, partners, and co-workers who do not fear experiments and failures (Markoff, and Seifert, 2022).

The current position regarding the initiation of IT or information technology in the company was bumpy. The initiation of IT in the process of digitalisation of L’Oreal first occurred in the finance section (Jimenez-Jimenez, Martínez-Costa, and Sanchez Rodriguez, 2019). However, it was realised that information technology in L’Oreal’s finance would be risky, and costly, and thus as a result IT was shifted from finance to Operations function. As an ulterior result, “Operations 4.0” got the impetus of a holistic digital or technological transformation. This transformation created a background in which L’Oreal brought “Beauty Tech”, an IT-based approach to sales, marketing, and product services. “Beauty Tech” was prepared to produce more than just focus on customer services and is enabled to solve internal issues as well. The current situation of L’Oreal is that the management is focusing to transform the company into a total digital company in which employees will get digital air to breathe enabling them to have a digital solution to every problem. “Beauty Tech” of L’Oreal transforms the production processes well because by implementing AI or artificial intelligence the customers are enabled to test beauty products as per their requirements (Markoff, and Seifert, 2022). This implementation of AI has brought customers benefits like AI-induced testers and tools for finding the right shade of foundation, correct hair colours, and other makeup products. These transformations of the company and its manufacturing, supplying, and delivering processes can be identified here and have benefited the company to become one of the leading brands in the world (Shevtshenko et al., 2022). This has added value to the position of IT, AI, and technology in general in the beauty industry.

The current situation of the company regarding the analysis of the market has been also digitalised. The demands of the market are always changing and as a result, a market that is emerging is often called to be “a complexifying market”. With digital and technological transformation, customers now can modify their decision via omnichannel, both online and offline, the constant production of innovation and creativity has provided the customer with an approach to demanding customised items. However, to understand this diverse market, greater analysis was required and “purely historical data and transnational” documents were not seeming enough at the moment (Markoff, and Seifert, 2022). As a solution to this matter, and to sense the market demands in its particular sources, the beauty brand initiated an initiative named “demand sensing” which aims to process and implement measures as per the demands of the audiences against the company. Based on demands, the company had already sketched out the “Platform as a Service or PaaS” that transforms its supply chain initiatives by digital means.

"Demand sensing" is used to understand the customer orders and the actual category of sold items, from both offline and E-commerce sections. This is essentially a digital tool of a cloud platform where business strategising and planning are observed. Data that was getting generated due to the usage of information technology and artificial intelligence allows the company to govern their supply chain, and manage it properly with ease. With technology and "demand sensing" a slight transformation in customer demands would be sent to the tiers of supply chain management, changing the production and manufacturing process within a short period.

“Personalisation” or customised beauty items have been on the list of demands by modern customers. The audience currently wants personalised items from L’Oreal that would fit their needs effectively. The initiation of technology and digital tools in the process of manufacturing and marketing has provided the company with enough space to adapt methods by which personalised experiences could be provided to the customers. In the current situation the company, personalise experiences, is by using Modiface’s AI and analytics technology that enables customers to choose the perfect shade of foundations for themselves without physically testing them (Markoff, and Seifert, 2022). Perso, the L’Oreal brand enables its customers to use their smartphones to analyse their skin types and tones and suggests the best-fitted foundation for them (Markoff, and Seifert, 2022). Other initiatives of L’Oreal brands are to produce personalised items in an industrial setting with the help of data received from customers via AI. the supply chain transformation of L’Oreal towards total digitalisation has been seen in the benefits the company have reaped. The company in recent years have ranked in the top ten best global supply chain seen in an industrial company.

Chapter 5: Proposed solutions

The previous sections have detailed the problems or challenges that L’Oreal has faced and the solutions that the company outlined. However, there is the presence of alternative solutions to the case of the various initiatives taken up by the company. The sales and marketing challenges that the company faced in its initiative of 20/50/100 were dealt with scepticism. Whereas, digitising the sales and marketing sector could have been done by establishing newer contact, collaborating with new management sectors, and initiating exchange programs within high-tech companies. Transformation of the websites, however, forms an integral part of the process of holistically transforming the sales and marketing departments. However, such initiatives were seen in L'Oreal as it adopts collaboration with the best incubators and accelerators for using technology to understand customer demands. The statement could be assured by the increased levels of E-commerce activities and interactions between the company and the customers. Almost 80% of all interactions were done based on technological-induced initiatives. To minimise the production time, L'Oreal deployed technologically advanced 3D printers that created multiple prototypes at once. However, the company could have utilised technology and run multiple and parallel processes of production for meeting customer demands. The inclusion of 3D printers might have been an expensive process, but procuring items in a parallel method could have reduced that costs (Halassi, Semeijn, and Kiratli, 2019).

Interaction with individual customers could have been done by using the enhanced role of social media in the current times. The usage of QR codes was technologically advanced and provided the company with search results data and information by which they could understand the market. But social media could have been used to track customer demands and its changing trends for products. Alternative solutions or recommendations regarding the initiation of IT are required. Information technology has been robustly brought into the finance section of the company which was immediately released to be “risk-averse”. Such intense focus on the implementation of IT has a risk of increasing costs for companies to a greater level. Thus an alternative solution to such an issue can be traced here, by removing the old and outdated IT tools from the supply chain management (Linde et al., 2020). To invest ton IT tools that “support remote workforce long term”. Another alternative solution for making IT much more cost-effective is to rapidly move the operations to a cloud of Saas.

To understand the market, L’Oreal could have deployed various theoretical frameworks as mentioned above. The theoretical models of SWOT and market segmentation could have been deployed. By using SWOT, L’Oreal could have understood its internal strength, weakness, opportunities and threat factors (Puyt et al., 2023). The most significant strengths of the company are its loyal band of customers and enhanced ambition towards sustainability and innovation. The weakness can be identified from the overwhelming usage of technology and excessive emphasis on R&D has relatively drained its revenue generation. As the company utilises technological avenues for growth, then there are boundless opportunities for the company to grow. However, as the world is slowly transforming into a digital world, every business house is aiming for a technological transformation, making the situation of competitive advantage tough competition. There are other methods, like deploying market segmentation theory, to analyse the market, just as the initiative of L'Oreal named "Demand Sensing" does. Market segmentation theory divides the population of a region into four categories by which correct audiences are identified and enables a company to identify the target audience easily (Ganbold, Matsui, and Rotaru, 2021).

Figure 4: Rise in the number of people at social media usage.

(Source: rise in use of technology chart jpg - Google Search, 2023).

Data optimisation can provide the supply chain leaders with an authentic image or insight into a company and accordingly, that company can modify its system (Li, and Liu, 2019). However, data that was generated in L’Oreal has enhanced the company’s performance. The process of personalisation has seen various technological innovations on the part of L’Oreal. However, the company could have used other platforms likely, such the social media platforms for conducting polls, surveys, in-advertisement interviews, and questionnaires. These might be technologically and digitally inspired and has the potential to provide primary and first-hand demands of the market that regulates beauty. Excessive presence on social media might benefit the company to understand the trends of various beauty products that might provide the company with an opportunity to produce items with minimum product life-cycle in the market.

Conclusion

The case study analysis has been provided with greater details in the following study. Challenges the company, L’Oreal might have faced in the process of technologising their production and supply systems has been identified. The study has provided a greater analysis of the issues and has proposed alternative solutions to the measures already adopted by the company.

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