YOU HAVE THE LOOK!

VIETNAM
“But when discretionary shoppers can’t find L’Oréal’s Colour Riche lipstick in
Brazil Nut, or Vive Pro daily thickening shampoos for men, all eyes focus on the
supply chain.”

~Ralph Folkes, L’Oréal ’s Assistant Vice President of Corporate Transportation

(O’Reilly 2010)
 CASE STUDY
‘You Have the Look Vietnam!’
The following is a non-real situation with L’Oréal Vietnam Ltd., a real global company in the cosmetics industry based in France, and
DKSH Vietnam, a real global market expansion services company based in Switzerland.

L’Oréal’s Supply Chain of Cosmetics in Vietnam

Vietnam’s vigorous GDP growth over the past few years (VnEconomy 2011) coupled with L’Oréal’s
experience to effectively implement a multi-channel strategy (Euromonitor International Passport
2012) have the management team excited to find ways in improving the business value for beauty
products in Vietnam. In order to attract and satisfy the high demand and diverse needs of local
consumers (VnEconomy 2011) L’Oréal is planning to offer a wide assortment of reasonably-priced
elegant cosmetics targeted toward different income levels (Euromonitor International Passport
2012) for both its consumer and luxury brand divisions. (O’Reilly 2010)

“The beauty market in Vietnam is growing strongly”, confirms Mr Jochen Zaumseil, L’Oréal
Managing Director Asia Pacific. L’Oréal is so impressed with future sales that there is strong
consideration for speeding up plans to build a factory in this promising market helping to support
the local and regional consumer demand within Asia. (VnEconomy 2011)

As the table below shows, the brand of L’Oréal Paris is one of the top sellers of cosmetics in the
Asia-Pacific region challenging FMCG personal care product favourites like Colgate, Dove, and
Pantene in the total number of sales. (Euromonitor International 2012)

Reproduced: Euromonitor International 2012

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A supply chain relationship – L’Oréal and DKSH
Only last year, L’Oréal completed an agreement with market expansion services provider DKSH to
manage all sales, logistics, and distribution within Vietnam for cosmetics brands L’Oréal Paris and
Maybelline New York. Ron Lim, General Manager of Consumer Goods for DKHS Vietnam voiced,
“We are delighted that L’Oréal has chosen DKSH as their Market Expansion Services partner in
Vietnam. In line with our strategy for growth, we always strive to provide more value-added
services and we support our business partners along the entire value chain with a portfolio of
integrated services, tailor-made to their needs. We are very honored by this partnership and look
forward to a long and successful cooperation with L’Oréal”. (DKSH 2011)

After a thorough performance evaluation of systems and processes currently in place for running
logistics operations inside the Southeast Asian country along with future considerations for
respective systems and processes needed in 2013 to help L’Oréal’s Vietnam expand its local
business, the board of management of L’Oréal Vietnam has chosen to promote one of its
specialists in logistics and supply chain management to the management position of Supply Chain
Partnership Manager in charge of developing, managing, and monitoring the relationship with
partner DKSH in Vietnam. One special consideration for this new job position was based on the
strategic decision by L’Oréal’s Vietnam’s board of managers to expand the product range currently
being offered to local customers. A second consideration was based on the strategic decision to
introduce new, never-before-sold-in-Vietnam brands. Both of these strategic decisions will come
with some implications for the management of the L’Oréal’s supply chain in Vietnam and those
logistics systems and processes involved.

It seems like 2007 was only yesterday; when you graduated with a Master’s degree in logistics
management from RMIT Melbourne, and you joined the new L’Oréal Vietnam team. Since then you
have gained a passion for logistics issues in Vietnam and the business of L’Oréal. So, when new job
position was advertised, you were ready to take on the twenty-seven other applicants from
different locations of L’Oréal in Asia who applied for the position. After two weeks of interviews

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and evaluations, you were selected. Great news! ...however, you will start your new position next
Monday.

First task: Review the following two reports (Appendix 1 and Appendix 2) and advise DKSH on the
necessary changes to make the products/service, information, and financial flows for the cosmetics
supply chain of L’Oréal in Vietnam more effective and efficient.

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 REPORT 1: SWOT ANALYSIS FOR THE SUPPLY CHAIN OF COSMETICS IN VIETNAM
STRENGTHS WEAKNESSES
 Responsive and quality-driven global supply  Underdeveloped retail and distribution systems for
chain (L’Oréal 2012) accessing customers in rural areas (Euromonitor
International 2012)
 Global leader in cosmetics with a wide portfolio
of favourite consumer brands such as L’Oréal  Collaboration with retailers could be stronger to
Paris, Maybelline New York, Garnier, Essie, more effectively distribute and market the various
Lancome, Biotherm, Helena Rubenstein, Shu L’Oréal brands (Euromonitor International 2012)
Uemura, Cacharel, Giorgio Armani, and Ralph and in the process establish better inventory
Lauren (L’Oréal’s 2012) visibility (L’Oréal 2012) and more accurate stock
numbers
 Ample production capacity on hand for the next
two to three years to support the Vietnamese  A more cost-effective approach is needed to reach
market from five factories in the Asia region end users of brands in the L’Oréal ’s consumer
(L’Oréal 2011) including the largest L’Oréal product division through retail segments such as
factory in the world located in Indonesia with a mixed retailers, mass merchandisers, chain drug
projected maximum production capacity of 500 stores, specialized cosmetics shops (O’Reilly 2010),
million units per year (Cosmetics design- and free-standing stores (L’Oréal 2011)
europe.com 2011)
 Improvements in carton, pallet, and cube
 Experienced 3PL service partner in DKSH with
standardization for the industrial packaging utilized
extensive knowledge about the Vietnam
in shipments made to customers inside Vietnam
business environment and many standard
can lead to long term significant reduction in
practices for the warehousing and distribution of
transportation, warehousing, and packaging costs
personal care products and pharmaceuticals
while at the same time establish compliance to set
(DKSH 2012), capable of providing customers
company targets for material footprint (O’Reilly
with tailor-made needs in logistics and
2010)
distribution (DKSH 2011)
 Diverse approaches to managing shipments
 Flexible systems in replenishing (O’Reilly 2010) complicates order fulfilment: big box wholesalers

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 L’Oréal products to customers from DKSH’s often will want regular truckload deliveries while
seven strategically-located distribution centres boutiques, salons, and direct-to-home buyers may
and two strategically-located logistics support order in smaller batches (O’Reilly 2010)
centres in Vietnam (DKSH 2011)
 Newly introduced products from current brands
 Highly conscious efforts invested in maintaining
and never-before-sold-in-Vietnam brands will
the quality of the products ‘from source to shelf’
complicate the process of purchasing and
(O’Reilly 2010)
inventory management (O’Reilly 2010)

 Universalization Strategy – L’Oréal ’s new model

 Poor forecasting for some L’Oréal products at
of globalization aiming to access all customers
some warehouse locations of DKSH but more so at
with beauty products that are right to their
some locations of customers may contribute to
personal needs and affordable (L’Oréal 2011)
SKU creep (O’Reilly 2010)
 Cosmetics contained active ingredients with long
life cycles (L’Oréal 2011)  Freight consolidation is not exploited enough at
this time toward achieving optimal minimization of
 Sustainable sourcing strategy giving
transportation costs (O’Reilly 2010)
opportunities to local raw material suppliers
who comply with L’Oréal ’s social and  Meeting a diversity of taste can negatively impact
environmental values to join and take part in the operational efficiency and economies of scale
L’Oréal supply chain (L’Oréal 2011) (Euromonitor International 2012)

 Far-reaching global distribution network with  Upgrades in most plants in Asia will have to be
143 distribution centres serving 450,000 delivery made in the coming two to three years to meet
points (L’Oréal 2011) regional demands for higher production capacity
(L’Oréal 2011)
 Products sold in sachet packaging facilitate those
price-conscious and low income customers the
opportunity to use L’Oréal products (L’Oréal
2011)

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 OPPORTUNITIES THREATS
 77% of Vietnamese consumers prefer foreign  Most shoppers are in the low income category and
brands (Euromonitor International 2010)
95% shop via mass channels (Euromonitor
International 2012)
 Offering products directly to an enormous pool
of consumers via the L’Oréal Vietnam website
 Competition from counterfeit or ‘me-too’ products
starting in 2013 (IGD Retail Analysis 2012)
at lower price points (Euromonitor International
2012)
 Vietnam is an attractive destination to set up a
base to manufacture the product (VnEconomy
 Fragmented consumer demand brought about by
2011)
income inequality (Euromonitor International
2012)
 L’Oréal Vietnam leading the colour cosmetics
sector with a 20% share value and showing a
 Manufacturers of premium cosmetics brands afraid
steady 13% CAGR up to 2015 (Euromonitor
to look at mass market channels for fear of
International 2011)
devaluing the brand image (Euromonitor
 Positive economic development brings International 2012)
consumers more disposable income to spend on
beauty and personal care products (Euromonitor  Inadequate government regulations and industry
International 2010) standards translate into low barriers of entry for
any company who wants to enter the market
 Large growing population of young consumers
(Euromonitor International 2012)
with an average age of 26 (Euromonitor
International 2010)
 Local competition of L’Oréal is significant and can
easily respond to demand of local customers
 Product innovation adapted to cultural
(Euromonitor International 2012)
differences can win over more consumers in
emerging markets (Euromonitor International
 Poor road infrastructure equates to more traffic at
2012)
all hours of the day, a longer average order cycle
 Increasing demand of premium brands of length in delivering orders to local customers,
cosmetics (Euromonitor International 2010) more frequent delays, and a very inconsistent and

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 spread out order cycle length variability leading to
 Strong growth of local players has opened new higher inventory costs
doors for collaboration (Euromonitor
 Technology infrastructure not ready yet for
International 2012)
implementation of efficient consumer response
and point-of-sale systems in the L’Oréal supply
 Expanding potential to second and third tier
chain (O’Reilly 2010)
cities as long as this is executed with a diverse
product range (Euromonitor International 2012)
 Strong challenge from competitors, both local and
international, for the limited amount of shelf
 New retailing formats surfacing including
space available at some department store locations
specialist stores, non-store retailing, such as
and supermarkets/hypermarkets (O’Reilly 2010)
direct-selling and internet sales, makeup kiosks
situated in malls (Euromonitor International
2012), and airport retail outlets (L’Oréal 2011)

 Room to tap into natural local trends of products

made with green tea, honey, and herbal
medicine (Euromonitor International 2012) as
well as production trends in the use of bio-
technology for the production of cosmetics
(Euromonitor International 2011)

 Prospects for introducing Vietnamese beauty

products to the world through L’Oréal ’s
umbrella of brands (L’Oréal 2011)

 Plans to soon expand on choices of products for

local B2B and B2C segments to buy (O’Reilly
2010)

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REPORT 2: ASIA LOCATIONS FOR KEY PLAYERS FOR THE SUPPLY CHAIN OF COSMETICS IN VIETNAM

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REFERENCE LIST

DKSH 2012, homepage, DKSH, Switzerland, 2012, viewed 25 July, 2012,

<http://www.dksh.com/htm/357/en/Homepage.htm>.

DKSH 2012, ‘DKSH to provide Market Expansion Services to L’Oréal in Vietnam’, DKSH, viewed 25 July, 2012,
<http://www.dksh.com.vn/data/docs/download/41118/en_VN/Press-release-DKSH-L-Oreal-EN-pdf.pdf>.

Euromonitor International 2011, ‘Passport Colour Cosmetics in Vietnam’, September 2011, viewed 18 July, 2012,
<http://www.portal.euromonitor.com.ezproxy.lib.rmit.edu.au/Portal/Pages/Search/SearchResultsList.aspx>.

Euromonitor International 2012, ‘Passport Beauty and Personal Care 2011: Corporate Strategies In and Beyond
the Brics’, January 2012, viewed 18 July, 2012,
<http://www.portal.euromonitor.com.ezproxy.lib.rmit.edu.au/Portal/Pages/Analysis/AnalysisPage.aspx>.

Euromonitor International 2010, ‘Vietnam’s dynamic beauty industry a bright spot for foreign investors’, 3
February 2010, viewed 19 July, 2012,
<http://www.portal.euromonitor.com.ezproxy.lib.rmit.edu.au/Portal/Pages/Search/SearchResultsList.aspx>.

IGD Retail Analysis 2012, ‘L’Oréal’s to offer its products direct to consumers’, 26 June 2012, viewed 26 July, 2012,
<http://retailanalysis.igd.com/Hub.aspx?id=19&tid=2&cid=201&nid=9326>.

Logo Resources n.d., ‘L’Oréal’s Logo’, 26 July 2012, <http://www.yourlogoresources.com/l-oreal-logo/>.

L’Oréal’s 2012, homepage, L’Oréal’s , Paris, France, viewed 25 July, 2012,

<http://www.loreal.com/_en/_ww/index.aspx>.

L’Oréal’s 2011, ‘L’Oréal’s Annual Report 2011, L’Oréal’s , viewed 25 July 2012,
<http://www.loreal.com/_en/_ww/html/company/pdf/LOREAL_RA2011_HD_27032012_EN.pdf>.

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L’Oréal’s 2011, ‘L’Oréal’s Sustainability Development Report 2011, L’Oréal’s , viewed 26 July 2012,
<http://www.sustainabledevelopment.loreal.com/DD/media/pdf/publications/GB/VGB_LO2011_RDD.pdf>.

McDougall, A 2011, ‘L’Oréal’s to open largest ever factory in Indonesia’, 18 February 2011, Cosmetics design-
europe.com, viewed 27 July 2012, <http://www.cosmeticsdesign-europe.com/Market-Trends/L-Oreal-to-open-
largest-ever-factory-in-Indonesia>.

O’Reilly, J 2010, ‘The Personal Touch’, Inbound Logistics, January 2010, viewed 26 July, 2012,
<http://www.inboundlogistics.com/digital/issues/il_digital_january2010.pdf>.

Thanh Nien News Online 2010, ‘Swiss firm to open distribution center in Hanoi’, Thanh Nien News, viewed 25
July, 2012, < http://www.dksh.com.vn/data/docs/download/30613/en_VN/Thanh-Nien-News-Online.pdf>.

Thu, T 2011, ‘Here they come’, VnEconomy, 29 November 2011, viewed 24 July, 2012,
<http://news.vneconomy.vn/20111129033623841P0C1/here-they-come.htm>.

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