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Digital twins for the supply chain of the future

Maryna Grytsenko Nénon Market Development Beauty and Personal Care at Avery Dennison France- Sponsored Content - Product Info

By Maryna Grytsenko, Market Development Manager Beauty & Personal Care, Avery Dennison Smartrac

Transparency, smooth purchasing and supply chain visibility are the key issues currently facing the beauty and personal care segment. Present before the pandemic, they have since grown and accelerated.

The drive for increased transparency is driven by a commitment to ethical work practices and by consumers' heightened concern for safety and sustainability issues. According to Avery Dennison's report " The New Transparency ", 70 % of people think trust in a brand is more important today than in the past. In the film " A portrait of a supply chain "Avery Dennison captures what transparency means for people working in the heart of supply chains. The film highlights the importance of creating digital supply chains, enabling greater transparency for raw materials, products and consumers throughout a product's journey.

Cacaste is one of the organizations featured in the film.

This Mexican cocoa butter producer is at the first stage of the supply chain: sourcing and processing of raw materials. Over the years, Cacaste has developed a close working relationship with a network of producers in Tabasco, which has helped build trust and traceability in the supply chain. The connection between man and the land is closely tied to the way supply chains have developed over the centuries. More distant than ever, the end consumer and producer can be connected again, through the use of digital identities, as this growing business that supplies cocoa to beauty companies from the United States to New Zealand demonstrates.

Finally, the pandemic also highlighted supply chain vulnerabilities. Product demand has changed dramatically over the years and has highlighted the lack of agility within brand supply chains. IHL Group estimates that excess inventory and stock-outs are costing the retail industry 1.8 trillion per year due to "global stock distortion : in other words, inventory mismanagement that exceeded Canada's GDP in 2020. By creating a seamless dialogue between what's in-store, what's on reserve, and what's sold online, brands can accurately match supply and demand. The right assortment of products can be delivered at the right time and place, minimizing overproduction and waste and keeping pace with changing consumer demand.

The need for supply chain redesign

The beauty and personal care segment demands supply chain integrity, agility and visibility. Even before COVID-19, Avery Dennison data revealed that inventory accuracy was a major challenge for the beauty industry, with nearly 50 % of retailers experiencing inventory distortions.

Omnichannel beauty retailers have struggled to trade physical inventory for digital and meet the higher digital demand that has occurred over the past two years. We see the same trend in a post-pandemic scenario when inventories are not accurate. They continue to struggle to meet the increased appetite of shoppers for omnichannel, seamless and instantaneous product availability.

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The lack of end-to-end, item-level visibility and supply chain transparency has put pressure on agility, safety and sustainability. The pandemic and subsequent e-commerce boom has also caused a larger shift in consumer behavior, especially in the beauty industry. By 2020, data from McKinsey & Co. had shown a 55% and 75% decline in cosmetics and fragrance purchases compared to the previous year. However, the post-Covid era and signs of a new recession are bringing new changes and a need to adapt faster and faster to new trends at both the brand and consumer level.

It's no secret that sustainability has also become paramount for beauty and personal care brands, as well as retailers and especially their customers. The clean beauty movement has placed a focus on ingredient integrity and environmental footprints. It is common for beauty brands to overproduce products to ensure a wide selection at all times. This often leads to unwanted excess - as trends change quickly and not all inventory is sold on time or before the expiration date. The energy and raw material expenses to manufacture, distribute and often dispose of this excess can be very high and also comes at a cost to the planet and brand value.

Linking the physical world to the digital world

Brands will have to be increasingly flexible and face a greater need to maximize their processes. Technology will play an important role in this.

Digital identification technologies, such as RFID or NFC, give non-digital objects a unique digital identity, opening up vast possibilities for supply chain management, commerce and communication. This digital identity is created when a lipstick, palette, or whatever item is manufactured. The identity travels with the product from the point of manufacture to the factory, through the supply chain to the retailer and beyond. It communicates information about the presence, authenticity, location of the individual product, or even just to connect with consumers.

How does it work in practice? Let's take the example of RFID technology.

Avery Dennison's radio frequency identification (RFID) technology enables the wireless or contactless transfer of digital identification and additional data between an RFID tag via electromagnetic waves. It can seamlessly identify, authenticate, track, detect and interact with every object. RFID can read tags without line of sight from a distance of a few centimeters to more than 20 meters, depending on the type of RFID system. Typical examples would be reading hundreds of products tagged inside boxes on a pallet with a fixed reader door mounted behind a shipping dock door. Or swiping a handheld reader across store shelves and racks to count inventory in seconds. Or tapping a smartphone on a luxury handbag to verify authenticity and enroll in a loyalty program.

Increase sales while reducing inventory

Following a successful pilot project, the Brazilian cosmetics company, Grupo Boticàrio, was the first to adopt RFID in the Brazilian beauty industry. Supply chain management is a challenge for any beauty company, one that proved increasingly daunting for Grupo Boticàrio as the company experienced double-digit growth in Latin America and the United States. Common problems included poor inventory visibility, stock-outs, high product shrinkage, slow product flow and inaccurate data for demand planners.

It chose the technology to provide end-to-end traceability across its increasingly complex supply chain. The RFID system was applied to improve five processes: shipment receiving, shelf replenishment, inventory counting, payment and demand planning.

Store employees noticed improvements right away. Incoming shipments are recorded faster and more accurately. Inventory is categorized in the store database as "back of store" or "front of store," making it easy to see when shelves need to be restocked and to track goods as they are moved. Alerts for products with impending expiration dates allow store staff to discount and sell these items before they expire, increasing revenue and reducing waste. At checkout, multiple products are counted together, rather than item by item. Inventory is counted much faster and more accurately than with the old barcode system. As a result, demand planners receive better information that allows them to order the right products for replenishment and better forecast sales.

By adding a digital identity to its products, Grupo Boticario has reduced stock-outs by up to 97 %, increased its identification of hidden stockouts by more than half and saw an increase in revenue.

These are impressive results. Isn't it time to see how a digital identity overhaul could transform the way your supply chain operates?

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For more information, please visit website or contact Maryna Grytsenko-Nénon, Market Development Manager Europe, RFID Beauty & Personal Care at Avery Dennison by e-mail at [email protected].

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