Avon Case Analysis
What do you do when you have an enormous growth opportunity but can't capitalize on it because your supply chain is in the way? If you're Avon, you embark on a radical transformation-a high-risk venture with no guaranteed returns.
Avon is the world's leading direct seller of beauty products, with $6.8 billion in annual revenues. In addition to cosmetics, skin-care products, fragrances, and personal-care products, the company offers a wide range of gift items, including jewelry, lingerie, and fashion accessories. Avon sells to customers in 145 countries through 3.9 million independent sales representatives. More than $1.2 billion of Avon's sales come from its Europe region, which serves 32 countries in Europe, the Middle East, and Africa with more than one million sales reps. But in the 1990s the region's strong growth threatened to overwhelm its supply chain organization.
With its primary focus on marketing and sales, Avon had neglected its supply chain for years. Back in the 1980s, Avon Europe had branches in only six countries, each with a separate factory and warehouse supplying the local market. The branches operated independently, with separate information systems, no overall planning, and no shared manufacturing, marketing, or distribution.
On a small scale, this worked quite well. Each entity could be very responsive to local needs. But in the early 1990s the company began globalizing its key brands and modernizing its image through the launch of new products, packaging, and ad campaigns aimed at younger consumers. Avon planned to double sales revenue in the Europe region from $500 million in 1996 to $1 billion in 2001. The company realized that replicating its country-based supply chain model in every new market would be expensive and unwieldy. Explains executive vice president Bob Toth: "Ten years ago we operated country to country, with a very decentralized model. You just can't compete that way now."
The first problem was a...
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