European Cosmetics Maker Turns to Outsourcing to Enter U.S. Market | Article

perfume bottleFor cosmetics manufacturer CCB-Paris, finding the right outsourcing service provider to distribute to U.S. consumers needed several makeovers to get it right.

The Paris-based beauty products direct marketing company is a venture of cosmetics giant L’Oreal and direct marketing company 3Suisse. Because the company’s strength is developing and manufacturing of cosmetics, executives elected to outsource all elements of order taking and distribution for its entry into the U.S. market in 1998.

The company sought a provider to handle all facets of sales, distribution and customer care, including telephone and email order taking, processing and fulfillment of orders from CCB-Paris’ catalog and Web site, credit card processing, inventory management, product warehousing and tracking, returns processing and catalog delivery. But finding a provider – one who could serve the buyer’s distinct needs and grow with projected sales – proved a challenge.

3Suisse is a subsidiary of Otto Versant, Europe’s largest direct marketing company and parent to catalogers Spiegel, Eddie Bauer and Newport News. So executives initially sought to tap one of those relationships to distribute cosmetics stateside, says Kevin Donohue, director of operations for CCB-Paris’ U.S. operations, based in New York City.

“It was just too costly. It really didn’t pay to start our own organization here,” Donohue says.

The relationship between buyers and outsource providers is deepening, especially as buyers seek to streamline operations and providers look to provide a wider array of services to maintain a competitive edge, says Steve Poniatowski, principal with SP James Consulting, a Minneapolis, Minnesota-based retail, manufacturing and distribution consultancy.

Finding the right relationship is essential, based both on experience and longevity of the provider, he says. Several years ago, Poniatowski surveyed third-party fulfillment and logistics companies. Of 150 in the space then, only 15 remain in this $1 billion-a-year business, he says. What has helped survivors succeed is flexibility, knowledge of their client industries, and scalability to meet clients’ growing needs, he says.

“There are a lot of surprises when you enter a new category in the fulfillment space,” he says. “Today, some are finally getting their customers to view fulfillment as something that can be outsourced more completely – saving money, providing better service through inventory management, order management, inventory planning, and help with planning.”

First, Look Within

For its initial launch, the company turned to sister company Newport News, the woman’s catalog, to handle back-end fulfillment. While Newport had the infrastructure, problems arose, Donohue recalls. Newport handles larger clothing and accessory items, not smaller cosmetics, he says, so the cataloger had to purchase a host of new packaging supplies. Staff also had to be trained on how to pack CCB product, which is packaged and presented in a deliberate and attractive fashion – including selection of packing tissue paper, as well as deal with the company’s return policy, he says. Being new to the market, people didn’t know who CCB-Paris was, and it was up to the customer service representatives to know the product and answer customers’ questions.

“Their system wasn’t designed for our product line,” he says. “It was great to start there, but we found very quickly we couldn’t get the flexibility for the marketplace we were looking at. So marketing had to be designed to meet those limitations. Our hands were tied.”

As CCB-Paris product found success with consumers, distribution couldn’t keep up. So in early 2001, the company transferred distribution to Total Fulfillment Services Ltd., a Trumbull, Connecticut-based outsourcer. With a more robust service than Newport News, TFS handled incoming calls and order fulfillment with Mail Order Manager, an off-the-shelf system to track, process orders and credit cards.

Still, orders outpaced projections by 50 percent, and TFS wasn’t projected to keep up. “It’s one thing to grow with a company,” Donohue says. “I needed a company I could grow into. I didn’t want to learn lessons over again.”

Finally, the company turned to NewRoads Inc., a fulfillment and customer care business process outsourcer.

Based in Greenwich, Connecticut, NewRoads services direct channel merchants, including retailers, manufacturers and catalogers who sell merchandise in non-face-to-face environments like catalogs, mail order, direct response television and e-commerce, says David Himes, NewRoads senior vice president of business process solutions. By combining the services with one provider, CCB-Paris was able to simplify otherwise complex management issues, like ensuring that orders received are fulfilled and that customer service can trace issues back through the fulfillment channel, he says.

Otherwise, he says, “You’re trading one huge set of headaches for another huge set of headaches for the multiplicity of contacts,” he says.

Look for Scalability

NewRoads operates 17 distribution sites with a combined 2.5 million square feet, and six call centers with a total of 1,700 seats. More than its facilities, NewRoads brought experience in cosmetics distribution. The company has serviced cosmetics company Avon and its online service. That led to experience in handling cosmetics products, which often must be selected and packed to specific buyer standards. The company also understands the often complex pricing and promotional models common to that industry, which may apply different discounts to different products within the same order, Himes says.

NewRoads was not handling the Web site or shopping cart, but the frequent batch-fed transactions sent from CCB-Paris to NewRoads, he says. In fact, as CCB-Paris grew, so too has its Internet business, which today amounts to 30 percent of its business, Donohue says.

“It’s not buy one, get one free,” Himes adds. “It’s a pretty complex promotional effort.”

This has led to better synergies between marketing and operations, says Donohue. For example, promotions can be developed on the fly, with little concern that fulfillment will be able to handle the back-end. “As an operations person, I don’t ever want to tie my marketing people’s hands,” he says.

CCB-Paris has remote access to NewRoads’ data systems. This allows managers at CCB-Paris to track inventories, and NewRoads executives to help forecast sales activity each week. This also ensures that ample product is shipped from Europe to avoid disruptions in delivery.

Risk Sharing

For NewRoads, this is a practice of sharing risk, Himes says. His biggest risk is assuming the challenge of handling a volume of activity he doesn’t directly control. This requires constant contact with the client to know upcoming promotions, slow-downs in production or shipping, in part so staffing levels can be maintained to ensure quality customer service. Better forecasting can lead to lower shipping costs. Just imagine, Donohue says, if product shortages in the U.S. meant air shipping product as opposed to shipping by boat, which takes upward of eight weeks.

In fact, the entire relationship benefits both buyer and provider, which is key to successful outsourcing, adds Poniatowski with SP James Consulting. Fulfillment done well protects the buyer’s brand from damage done by poor customer service or product delivery.

“The key to any good outsource relationship is the willingness of the provider and client to collaborate on the process,” Himes says. “Business process outsourcing is not a process where you can sell the work to the provider and walk away. You have to stay engaged. CCB-Paris has stayed engaged with us. Monitoring, watching service levels, anticipate activity levels, warning about promotions, delays in availability in merchandise. All of that can create huge problems if you’re not really collaborating appropriately.”

Lessons from the Outsourcing Journal:

  • Find a business process outsourcer able to grow with your company’s needs — today and in the future.
  • Investigate many providers. Look for those with previous experience in your area and customer base. This will shorten the learning curve.
  • Share risk and involvement. A buyer shouldn’t walk away after engaging a provider, and a provider shouldn’t expect to go it alone without the buyer’s continuing input.

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