What is Procurement?
The business textbook says ‘Procurement’ is an act of obtaining or buying goods or services. The process includes preparation and processing demand as well as the end receipt and approval of payment.
Procurement is an essential part of any company’s strategy because of the ability of the procurer to purchase materials which will determine the course of action for the operations. It is also very important for procurement to be done in an optimum value, in order to ensure the profitability of the business.
A closer look into the Cosmetic Industry
The cosmetics industry is growing rapidly and is mainly governed by the demands of the consumers and celebrity endorsements. With an industry as dynamic as the cosmetics industry it is important to pay attention to the trends and understand the demand and consumer sentiment towards the brand in order to maintain a balance with procurement and supply of products.
In recent times, the cosmetic industry has seen an upsurge in the demand for natural and organic products. This has led to an increase in the already prominent challenges for businesses, namely:
- Sourcing Challenge: Procurement of natural ingredients has become a complex process due to their widespread geographical availability and durability.
- Transport & Storage: Raw material for cosmetics needs sensitive handling and specific storage to avoid them from losing their properties resulting in loss.
- Durability: Inventory management is the key. Any cosmetics come with an expiry date, making them time-sensitive for warehouse keeping and sales.
- Volatile Demand: With the ever-changing trends, the demand for a product may be in abundance today and may be obsolete the next day.
- High-Quality Expectation: Quality of a cosmetics industry product can have a huge impact on the brand image, business and consumer health.
All procurement processes and beyond, right from purchasing, merchandise control, climate, storage conditions, hygiene in the production process and the treatment of raw materials must be continually inspected. Transparency has to be ensured from the beginning of the chain until the finished product is sold.
The Way Ahead
A strong procurement plan can be the answer to each of the challenges faced by the cosmetics industry. Managing the supply chain plays a pivotal role in maintaining customer satisfaction.
- Forecasting: The first step in the procurement process is to understand the current demand and keep in mind the changing trends. Accordingly, make an informed decision about ingredient purchasing and inventory placement for retail.
Cosmetics forecasting takes into account historical sales of existing product lines, planned advertising and promotion, seasonality, syndicated data available on category or similar product sales, customer demographics and, sometimes, intuition.
- Product Knowledge: An understanding of the formulation and manufacturing timeline comes in handy while making a procurement plan. For cosmetics, some ingredients may be perishable and thus, have expiry dates. With the knowledge of the raw material, special storage and handling arrangements can be made to avoid contamination.
- Shipment Packaging: Packaging may sometimes become a bottle-neck and may lead to a disturbance in the supply chain timeline. Packaging material procurement, as well as back-up planning, helps in keeping the process timeline on track, thus, preventing loss for the business.
- Logistics: Cosmetic products sitting in the warehouse will be of no good. Planning the distribution and transport for products to various retailers ahead of time shall facilitate the process of supply chain by maintaining a constant inflow and outflow of products.
In some cases, there also needs to be a plan in place for inbound logistics or product returns in order to avoid chaos and disruption of a set process.
The Bottom Line
The cosmetic business is seasonal and new collections are introduced two or three times in a year. The supply chain process of products with a highly dynamic nature is shaped by many internal and external requirements and restrictions. With the rise of demand within the cosmetic industry, manufacturers and businesses need to continuously adapt to new technological processes in order to maintain supply and keep costs low.
It becomes important to have a sense of the market sentiment for the brand. Making use of digitization and a reliable database can further support the process of procurement.
Procurement is not only a data-driven process, but it also involves instinct and know-how of the intricacies of the business.