Cosmetics company in China finds new supplier for fast shower product transfer
This was a product transfer project for a Fortune 500 cosmetics company. The client wanted to examine whether it is utilizing the optimal procurement process for its shower products given the current supplier base, and to evaluate the cost implication and feasibility of transferring the product to a third-party contract manufacturer in China. ARC Consulting was requested to study the top cosmetics manufacturers in China to achieve the following objectives:
- Assess the capacity and technical capabilities of selected potential suppliers to produce defined products
- Gather quotations, conduct a cost analysis, and compare selected suppliers
- Understand suppliers’ requirements and transfer speed should they be selected
Through the benchmarking of the mainstream cosmetics producers in China, several different sourcing schemes for client’s shower products were identified and analysed to determine the optimal solution for the client. In addition, the results of this study enabled the client to thoroughly exam its current cost structure and to evaluate the possibility of a product transfer to a third-party contract manufacturer in China.
China’s developing cosmetics industry makes the client’s objectives achievable, as many of the top cosmetics manufacturers are qualified to deliver to the client’s product specifications. With the improvements to manufacturing technology in China, the cosmetics production lines have also been updated. From mixing to packaging, the majority of the processes have been automated to increase annual capacity and improve the quality and consistency of products, thus allowing the companies to match the unique client needs nearly perfectly.
Moreover, with the development of China’s international trade, most of the cosmetics companies have the qualification and capability to manage the complexity of importing and exporting, and thoroughly understand the quality and specification requirements of the major trading partners. Most of their employees can communicate with foreign companies effectively.
The project has been implemented into 3 parts to achieved objectives:
- Company Profile and Capability Evaluation
- Cost Analysis
- Transfer Process and Time
1. Company Profile and Capability Evaluation
- China’s top cosmetics suppliers located within 100 kilometres from the client’s factory have been selected.
- General company information, management information, financial status, export experience, reference customer, capacity, production technology, machinery and equipment, storage capacity, communication, and other qualifications have been thoroughly reviewed through telephone interviews, RFIs, and production technology questionnaires.
- Three suppliers were selected based on the information received.
2. Cost Analysis
- Detailed cost analysis was conducted based on annual and per unit information.
- Two scenarios, full outsourcing and partial outsourcing, were investigated.
- Both scenarios were evaluated from raw materials, conversion, secondary packaging and investment perspectives.
The conversion cost has been analysed through each production step, including compounding, filling, packaging, quality, fee, external tests, profit margin, and overhead. Even finance influences were studied. In addition, variables such as type of product demand quantity, package type, and variant size were investigated for the influence they can have on the pricing.
3. Transfer Process and Time
The transfer costs were also included in the cost analysis to understand the cost of time for each process step from order to delivery, and the time required if additional investments are needed
Through the above analysis, one supplier stood out from the competition due to its competitive prices, capacity, production equipment and lower conversion costs.
Two other contract manufacturers were also recommended to the client as they demonstrated more experience in production and export. The client could negotiate the packaging costs and margin with these two organizations.
From this analysis, comprehensive information on top cosmetics manufacturers in China has been acquired, including production capacity, technical capability, financial status, cost structure, transfer cost and more. Further, an in-depth understanding of the cost and feasibility of a product transfer has been realized so as to help the management team make their decisions. The information obtained was key to examining the client’s current procurement program and understanding its options for the future.