Best Practices -- Rare Beauty

Dec. 21, 2004 delivers customized products in lots as small as one with remarkable on-time performance.

At first blush, producing women's cosmetics in lots of one wouldn't seem to be a profitable proposition. But the principle that Land's End Inc. and Nike Inc. are using to customize trousers and sneakers is being employed by San Francisco-based LLC, a September 1999 spinoff of Procter & Gamble Co., to make beauty products individual consumers can buy for an affordable -- albeit premium -- price. The privately held company, in which P&G has a stake, does not report its financials. The virtual door to opened in December 1999, and the company has been in business ever since. Through its online operation, which accounts for most of its business, the company seeks to deliver such items as lipstick, powder, shampoo, hair conditioner and fragrances to a U.S. or Canadian customer's door within 10 days. COO Alex Zelikovsky, a former director of logistics at, claims that on-time performance is 99.6%. wouldn't be in business were it not for the Internet. "You cannot possibly make these products in an inventory model and put them on the shelf for each and every woman to go to the store and buy.. [You'd have] to have a store the size of New Jersey," asserts Zelikovsky. But's business also depends on a couple of other significant developments. One is company-developed and patented "neural network" technology. Basically, it gathers data from a customer and tells manufacturing what and how much to make. Zelikovsky puts it this way, "The consultation process drives the creation process." The other notable is an end-to-end mass-customized supply chain that includes a manufacturing facility in Port Jervis, N.Y., which can make a lot of one on each of its production lines. What's more, with "the processes and the systems we have developed, we are capable [of doing] up to 30 product changeovers in a single seven-and-one-half hour shift on a single line," says Zelikovsky. These are "different SKUs, different products that we can formulate and run on a production line," he emphasizes. In contrast, he asserts that two product changes would be too many for other beauty care companies. "I have been able to systematize and create a production process that emulates a mass-production line -- but on a customized basis." Zelikovsky won't discuss the details of these processes or production machinery, saying most of the stuff is patented or proprietary. However, he does confirm that the company has integrated IBM Corp.'s Net.Commerce and Optum Inc.'s Move warehouse management software into its supply-chain management. Why not a completely customized system? Says Zelikovsky, "I don't need to build a brand-new e-commerce capability because there are hundreds of companies today using a successful platform. And from the Optum Move standpoint, these guys have been around for 20 years . . . and their platform is extremely robust and solid. Why should I invest six months of resources to develop a functionality that is pretty straight-forward from the inventory-receive [to] put-away [to] pick-[and]-pack standpoint?" And then there is the bottom-line question: How can produce lots as small as one and make a profit? "The answer is, we can and are doing it," says Zelikovsky. "We are priced in a prestige beauty segment . . . and our price points do allow us the necessary margins to be profitable."

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