Shiseido’s supply chain struggle: CEO estimates product shortages led to $450m sales loss
This was blamed on a combination of strong and natural disasters.
“I assume that there was around ¥20bn ($181m) impact in profits, so we would like to make a recovery as quickly as possible,” said Uotani.
Increasing supply
Solving the company’s supply chain issues is a priority for Shiseido, he added.
“I want to avoid a situation where future management say that products cannot be offered to consumers because of insufficient production capacity. That is why we want to make enough progress now.”
In order to cope with growing demand, Shiseido will open another cosmetics factory in Kurume City, Fukuoka. Shiseido said it plans to invest ¥40bn ($363m) to ¥50bn ($454m) in the new facility.
The new Kyushu Fukuoka factory is schedule to start operation in 2021.
Currently, Shiseido has two more factories under construction in Osaka and Nasu. Together with the Kyushu Fukuoka factory, it hopes to further business expansion in Japan and abroad.
The new Kyushu Fukuoka factory was designed to be a ‘next generation factory’ equipped with cutting-edge technology such as Internet of Things (IoT) capabilities.
With the three new factories, Shiseido will have six domestic factories to support its long-term continuous growth.
The Kyushu Fukuoka factory will focus on the production of skin care production. However, Uotani added that with six factories, Shiseido will have the flexibility to shift production to other sites if a particular site is at full capacity.
“We have designed our domestic factories with this in mind, so we can be more flexible with six factories.”
With the three new factories, Shiseido’s capital investment plan from 2018 to 2020 will amount up to around ¥400bn ($3.6bn), said Uotani. The amount includes investments into other areas such as R&D and store counters.
He added that majority of the amount could be covered with cash flow.
Other counter measures
In 2018, Shiseido increased its production and supply by 10% compared to the year before.
“Even with this, there was still shortage, but we were able to contribute results that exceeded far beyond the initial plan of 2018,” said Corporate Executive Officer, Norio Tadakawa.
Tadakawa explained that the company managed to do so by collaborating with suppliers to bolster supply and increase its own production capacity.
Additionally, Shiseido reduced 2,688 SKUS in 2018 to minimise opportunity losses.
“We have made a decision this year to reduce another 1,000 SKUs. Last year I announced that we will reduce 4,500 SKUs over a two year period, but we would like to reduce more than this,” he said.
Even with the new factories in works, Tadakawa stressed that the company would still feel the effects of shortage in 2019, considering that its first new factory, Nasu, will only start production at the end of the year.
“We do not intend to have such a big impact [as last year], but 100% supply is not possible, I believe,” he commented.
Additionally, he added that it was also dependant on other factors such as changes in demand as well as suppliers, which will need to change the way it procures materials.
“We have implemented measures to minimise opportunity loss of core products but supply is still not 100% yet. We will continue to make improvements to advance ahead,” concluded Tadakawa.
