Reduction in production deadlines improves efficiency of cosmetics sales forecasts, study shows
In 2017 and 2018, a Brazilian cosmetics company experienced major distortions between its estimated monthly sales and actual sales delivered to its salespeople. The average discrepancy was as much as 90%. Due to long lead times for third-party manufacturers to deliver orders, the company kept inventories of up to four times average monthly product sales. These are among the findings of a study carried out by researchers Luis Henrique Rigato Vasconcellos and Henrique Fonseca of the Department for Production and Operations Management at Fundação Getulio Vargas’ Sao Paulo School of Business Administration (FGV EAESP).
The study, based on a 23-month intervention at a cosmetics company, looks at operational results and anticipated demand (based on the idea of “push logic”) between October 2017 and November 2018, and then compared this data to the period of transition to a system based on responsiveness to sales made, or “pull logic,” implemented between October 2018 and August 2019.
Thanks to a reduction in production and distribution times, the average inventory period was reduced by up to a third in the following year. Thus, by bringing inventory levels closer to actual demand, the company improved its sales forecasting. The average error declined by up to 70%, boosting the efficiency of operations.
In the new system, outsourced manufacturers committed to deliver the requested products in no more than 42 consecutive days in the case of fragrances and 55 days in the case of skin care creams, the two products analyzed in the study, down from almost six months before. Because of the shorter time interval before the company received the final products, the sales forecast error was reduced from 90% to 27% in the case of skin care creams and from 61% to 33% in the case of fragrances.
By bringing the number of inventory items closer to actual sales, in line with “pull logic,” the level of inventory coverage was reduced from 4 to 2.7 months for skin care creams and from 3.3 to 2.1 months in the case of fragrances. The study emphasizes that the decrease in finished product inventories at the cosmetics company did not cause any increase in inventories of inputs used by manufacturers, which remained the same.