Integrating Supply Chains: Coty Cosmetics Integrates Unilever Cosmetics International

question 104

Essay

Integrating Supply Chains: Coty Cosmetics Integrates Unilever Cosmetics International

In mid-August 2005, Coty, one of the world's largest cosmetics and fragrance manufacturers, acquired Unilever Cosmetics International (UCI), a subsidiary of the Unilever global conglomerate, for $800 million. Coty viewed the transaction as one in which it could become a larger player in the prestigious fragrance market of expensive perfumes. Coty believed it could reap economies of scale from having just one sales force, marketing group, and the like selling and managing the two sets of products. It hoped to retain the best people from both organizations. However, Coty's management understood that if it were not done quickly enough, it might not realize the potential cost savings and would risk losing key personnel.

By mid-December, Coty's IT team had just completed moving UCI's employees from Unilever's infrastructure to Coty's. This involved such tedious work as switching employees from Microsoft's Outlook to Lotus Notes. Coty's information technology team was faced with the challenge of combining and standardizing the two firms' supply chains, including order entry, purchasing, processing, financial, warehouse, and shipping systems. At the end of 2006, Coty's management announced that it anticipated that the two firms would be fully integrated by June 30, 2006. From an IT perspective, the challenges were daunting. The new company's supply chain spanned ten countries and employed four different enterprise resource planning (ERP) systems that had three warehouse systems running five major distribution facilities on two continents. ERP is an information system or process that integrates all production and related applications across an entire corporation.

On January 11–12, 2006, 25 process or function "owners," including the heads of finance, customer service, distribution, and IT, met to create the integration plan for the firm's disparate supply chains. In addition to the multiple distribution centers and ERP systems, operations in each country had unique processes that had to be included in the integration planning effort. For example, Italy was already using the SAP system on which Coty would eventually standardize. The largest customers there placed orders at the individual store level and expected products to be delivered to these stores. In contrast, the United Kingdom used a legacy (i.e., a highly customized, nonstandard) ERP system, and Coty's largest customer in the United Kingdom, the Boots pharmacy chain, placed orders electronically and had them delivered to central warehouses.

Coty's IT team, facing a very demanding schedule, knew it could not accomplish all that needed to be done in the time frame required. Therefore, it started with any system that directly affected the customer, such as sending an order to the warehouse, shipment notification, and billing. The decision to focus on "customer-facing" systems came at the expense of internal systems, such as daily management reports tracking sales and inventory levels. These systems were to be completed after the June 30, 2006, deadline imposed by senior management.

To minimize confusion, Coty created small project teams that consisted of project managers, IT directors, and external consultants. Smaller teams did not require costly overhead, like dedicated office space, and eliminated chains of command that might have prevented senior IT management from receiving timely, candid feedback on actual progress against the integration plan. The use of such teams is credited with allowing Coty's IT department to combine sales and marketing forces as planned at the beginning of the 2007 fiscal year in July 2006. While much of the "customer-facing" work was done, many tasks remained. The IT department now had to go back and work out the details it had neglected during the previous integration effort, such as those daily reports its senior managers wanted and the real-time monitoring of transactions. By setting priorities early in the process and employing small, project-focused teams, Coty was able to integrate successfully the complex supply chains of the firms in a timely manner.
-How might this emphasis on integrating "customer-facing" systems have affected the new firm's ability to realize anticipated synergies? Be specific.

---

Definitions:

Underapplied Overhead

The situation where the allocated overhead costs are less than the actual overhead costs incurred.

Debit Balance

An accounting entry that indicates the amount owed by a company, typically found on the left side of a ledger.

Work in Process Inventory

The value of partially completed goods that are still in the production process at a given point in time.

Underapplied Overhead

The situation where the allocated manufacturing overhead is less than the actual overhead incurred, leading to an adjustment need in accounting records.