If you bumped into Barbara Lavernos in L’Oréal’s university-like headquarters in the Paris suburb of Clichy, you probably wouldn’t guess she worked in purchasing. Stylishly dressed and with designer glasses perched on top of her head, she blends in effortlessly with the company’s image-conscious employees as they go about creating and marketing some of the world’s leading cosmetics brands.
Lavernos should feel comfortable in her surroundings: she has worked for L’Oréal her entire 17-year career since graduating with a degree in chemical engineering. She started out as a packaging buyer, then moved into product development and ran a big factory making shampoo and shower gel near Paris, before taking over the CPO position in September 2004.
Since then she has followed the path trodden by many of her peers in other large global companies – centralising purchasing away from 37 facilities into seven regional sourcing centres, creating a lead buyer organisation and giving her 450-strong team the IT tools they need to do an efficient and effective job.
Her contribution in moving the function forwards has been recognised at the highest level. Announcing L’Oréal’s 2007 results in February, CEO Jean-Paul Agon credited the “optimisation of procurement” as one factor that had helped the company to weather the storm of high energy and raw material prices.
But Lavernos sees the role of a CPO as about more than the bottom line: she has also invested significant time and effort in social and environmental issues and is a firm believer in the long-term value that key suppliers can deliver, particularly in the area of innovation. In her first major interview, she talked to CPO Agenda about why she thinks these are a fundamental part of purchasing’s day job.
What are the most significant benefits of the changes you’ve made so far?
The first benefit has been around people: we have seen an explosion of talent among our local purchasers, and talented people from other functions in the company have been attracted to purchasing, which was not really the case before. That gives us a higher visibility internally.
The second benefit is efficiency, which is very tangible. When we have a problem to fix with a supplier, for example, we have people who deal with it quickly and directly. The third area is opportunities on the supplier landscape, where a guy in, say, Italy is now sharing his knowledge with people in Asia, in Mexico and Brazil.
The last main change is that purchasing has taken responsibility for more categories internally, such as display and promotions, which was handled by marketing before, and this is continuing. There is still work to do, but you can feel the difference.
It’s interesting that you didn’t mention cost savings. How important is that for L’Oréal and for you in purchasing?
Keeping costs under control is a key focus within L’Oréal and one of our main priorities, particularly this year with very difficult raw material conditions. We spend billions of euros on direct materials and we are in a nightmare period for purchasers when raw material prices are increasing everywhere in the world.
But because of our changes we have achieved great savings that have offset the impact of these commodity price rises. Our budget for 2008 hasn’t increased, and even in areas like packaging, where things have been tough, we have many potential opportunities to reduce our costs this year. We’ve worked closely with our marketing and technical colleagues on things like value analysis at the beginning of a product cycle.
For me, though, cost savings are a consequence, not a starting point. They flow from the way you organise, the way you do things, from having the right people in purchasing and the right choice of suppliers. The challenge is to find new ways to make savings without hurting the profitability of our suppliers, so that they continue to invest in innovation.
How does cost rank in priority terms against your two other key pillars of risk management and growth?
Cost reduction and risk management are really at the same level. Our contribution to growth is really difficult to measure and we have more work to do there. But L’Oréal is growing by 8 per cent a year and we have to supply this growth, whether it’s in Eastern Europe, Asia, Latin America or the US. We manufacture in our local markets and it’s our job to make sure that we have the right supply, in terms of capacity, in terms of qualification of suppliers. In a cosmetics company like L’Oréal, 30 per cent of your products can change in one year and you have a lot of new launches to manage.
The amount of capital investment done by us and our suppliers is huge. One of the key trends in cosmetics over the last three or four years has been in electronics, and L’Oréal has followed that. That has meant we’ve had to develop our supply chain in electronics too.
What will be the key areas of focus for purchasing over the next three years?
There are two main ones. The first is corporate social responsibility (CSR). How do we continue to limit the risk, enhance our capability, choose the best suppliers and create value for our company through CSR, whether it’s through claims that our marketing people can make or new materials? The second area is innovation. How can we work more closely with more strategic suppliers in more strategic categories, so that we extend L’Oréal’s sources of innovation? How do we organise that supplier ecosystem and get their researchers working with ours?
As a company we have had co-development contracts with key VIP suppliers for a long time, but they were few in number. Today, the complexity of our product categories means that we have to extend the number of co-development suppliers we are dealing with and we have to be more open to the fact that initial ideas can come from outside. That is a huge change for the company and for us, because we are the interface with the suppliers, we are managing the relationships with them.
L’Oréal’s culture is to work with suppliers for a long period. When you have a lot of product launches, you invest a lot in working with those suppliers and both parties build up a lot of experience together that you have to capitalise on. So it makes sense to stay with the same suppliers. Just look at the differences in skincare products today compared with 10 years ago, in terms of the choice available, the materials, the dispensing systems and so on.
When you have to purchase things that are changing so much, you need to work with people you know very well, who understand you very well, and who can provide the right quality and logistics. Of the 3,500 suppliers we have for direct materials around the world, we have relationships of 10 years or more with three-quarters of them. But only about 5 per cent of those – perhaps 8 per cent in some areas – are really strategic, in the sense that they are a lever for our growth and profitability.
It sounds like the barriers to entry for new suppliers are quite high. Is that the case?
Yes, in a way. If we have good suppliers, why wouldn’t we stay with them? At the same time, we always need newcomers to change our habits, to provide more capacity in a particular country, or because they can offer us new materials. We like our suppliers to be working with other big customers and not be too dependent on us. We want to know from our suppliers how technology is evolving, what’s happening in other industries that they do business with. If you have a dominant customer or supplier, you can be very comfortable for a few years, but then the world changes direction and you are left behind.
I understand that last year you convinced L’Oréal’s CEO, Jean-Paul Agon, that he needed to engage with his opposite numbers at major suppliers. How did you do that?
We simply pointed out that he had meetings with our big customers and asked him if he would meet with L’Oréal’s key suppliers. I wasn’t sure whether he would accept, but he did and his reaction was very positive. We are just starting this programme now and it will focus on our most strategic suppliers.
What effect do you hope this will have?
The first thing is around innovation. By having discussions with CEOs at our key suppliers, he will better understand what they are doing and the technology they are developing. It will also give him an opportunity to explain L’Oréal’s vision directly to them. I’m sure these personal exchanges will be great. Suppliers will be interested to see what reaction he has to their ideas, and I am sure they will take some of his ideas and develop them faster than might otherwise be the case. The second thing is that exclusivity is important to us for new developments, and Jean-Paul Agon will be excited to learn more about that from suppliers.
You have carried out more than 1,000 social and environmental audits at suppliers since 2002. Why have you done this?
Because we need to make sure our supply chain is right in places like China, other Asian countries, Mexico, Latin America and Eastern Europe where we make and sell our products. In some of these countries, health and safety, working hours and other conditions are not protected by law or the law is not enforced, so we have to fill the gap. The demand to do this didn’t come from elsewhere in L’Oréal, it came from the purchasing team, which is not usually the case.
We were proactive, not only in starting an auditing programme, but also in making it bigger and more ambitious. Today, everybody is thinking about audits, but that was not the case three years ago. Our CEO gave his commitment to the programme and agreed that we should pay for a third party to conduct the initial audits. We are one of the rare companies that is not asking suppliers to pay for this.
We’ve also used the same third party to audit all of our own facilities around the world. Some CPOs I have talked to have been surprised that we are auditing suppliers that are producing things without our brand name on them. They think we are crazy! But the thing to remember is that we are a very product-led company and we are dealing with our final customers all the time. Their demands have changed and that is something we must respond to.
Last year alone, the audit process found over 150 suppliers that did not meet your standards. What is your response in this case?
We share the audit report with the supplier at the same time as we get it, then we discuss what needs to be improved and ask if they want to do it. Some suppliers are not interested in changing their culture, their vision or their ways; they take the view that what we are asking for is not their concern. In those cases we have to stop doing business with them and impose a global ban.
But that doesn’t happen very often: of the more than 1,000 companies we’ve audited, we’ve probably had 30 that came back to us and said that. In most cases, companies do want to improve. So we share our ideas, we advise, and in some cases we have some of our people working with them to make it happen. A few months later we’ll check back with another audit, and then after two years we will do another one to make sure they are still compliant.
We aren’t going to be 100 per cent compliant everywhere tomorrow, that’s impossible. We are working with our suppliers to make sure they are involved in CSR, which is tough. That’s a job we have to do. I think we are in the top three customers in cosmetics working on CSR. L’Oréal is really working on this very hard and very deeply.
Is this just about compliance, or are there cases where your relationship goes beyond that?
The vast majority is about compliance; we have to do the basics. But then we want to look at the really interesting stuff around CSR – fair trade, working with more diverse suppliers, developing new materials that are less wasteful or new ways to produce that use less crude oil, and contributing to growth. CSR can be a new lever of innovation, a new way to do business. In some strategic categories we already have co-development programmes, but we are not at the level where we want to be yet. Today we are looking at which of our suppliers we want to co-develop with, and that can mean different things in different countries.
Is purchasing leading your efforts to make L’Oréal’s products more environmentally friendly?
It’s a cross-functional programme, because in the case of raw materials our research people will be involved, and when it’s packaging it’s technical and marketing people. It can absolutely not be purchasing alone. Our colleagues demand a lot, they are pushing us to find new environmentally friendly raw materials. We also have a big programme, which began several years ago, to reduce the quantity of raw materials we are using, making our packaging lighter, downsizing it. That’s about ecology and economy.
L’Oréal strongly engages with its suppliers in environmental initiatives, not only in packaging and raw materials but also in terms of manufacturing processes. We will be working on this with a group of them this year as part of our involvement in the Carbon Disclosure Project’s Supply Chain Leadership Collaboration initiative (see Briefing).
What’s the main lesson you’ve learnt on CSR during the past three years?
That you have to take account of the cultural differences of the country in which your suppliers are based. You have to explain what you are doing and why it’s important to you, but also find ways that it makes sense for them too. Helping them to understand that can take time, and it isn’t easy. But that’s the right way to do it.
