Palestra AMCHAM “Ciclo de Eficiência na Cadeia Logística”

Marcelo Frias, Avon Latam Logistics Director

October, 01st 2014.

About Avon

• For more than 125 years, Avon Representatives have brought beauty into the lives of women

• Avon, the company for women, is a leading global beauty company, with $10 billion in annual revenue

• More than 6 million active independent Avon Sales Representatives

• Products are available in over 100 countries

• Color cosmetics, Skincare, Fragrance, and Fashion and Home products

The "three pillars" of Avon's corporate mission and the focus of the company's corporate responsibility efforts and

achievements:

Social Reponsability

Operation Network LATAM

Peru Site

MANUFACTURING

Guatemala Site

Chile Site

Argentina Site Moreno

Brazil Site Interlagos

Colombia Site Medellin

Mexico Site Celaya

Vezla Site Guatire

Source Points Site

NOLA - Mexico

Guatemala

D.Republic

Nicaragua* Honduras* Panamá* El Salvador*

SMG – Argentina Chile

Uruguay

Paraguay

CPE - Colombia

Venezuela

Brazil

Ecuador

Peru

Stand alone

Stand Alone

*Supplied by Guatemala

Main Logistics Indicators 2014 YTD+Profit Plan

More than 26.000 shipments

Over 1000 lanes

3200 FEUs

100.000 Ton of volume

Spend of $110M

More than $420M of product cost

Over 30 Customs Units

18%

59%

4%

19%

How Avon Logistics can support strategic procurement, reduce in transit inventory?

How can we have minimal/economic stocks in inventory building?

Incoterm Review Project - EXW to FOB

Main Objective: Complexity Reduction

Seller Named Place Buyer

EXW

(Ex Works)

Seller

Buyer

Responsability

FOB

Carrier Border Port Ship Port

(Free On Board)

FOB

Logistics Complexity +

Compliance/Customs Risk ++

Cargo Handling Risk +

Cargo Delivery Date +

Flexibility on shipment =

Responsibility ++

Air Freight =

Lead Time +

Inventory in Transit +

Inventory Management +

Partial Nationalization/Call Off =

Cash flow +

Main Expected Benefits

Strong Improvement

++

Moderate Improvement

+

No Change =

Moderate Decrease

-

Strong Decrease

- -

FOB INCOTERM allows Avon taking the full responsibility over risk and cost

implied by EXW term;

Share with supplier the portion of responsibility over which he can have better

control: the local operations at origin;

8

Operational Scenario – Previous to project • 25 % of volume imported by LATAM; • 2600 processes/year; • High LCL shipments volume (70%); • 21 ports at origin x 7 destinations = 147 Lanes; • Pick up coordination at 115 supplier’s sites.

ASIA Consolidation Project – Overview

Identified Opportunity: Development of a 3PL (supplier) at China to coordinate consolidation; process and orders managements to LATAM (7 markets).

Delivered Results: • Logistics complexity reduction: 3PL order management; • Major control and processes standardization; • Logistics Costs reduction through consolidation, containers;

optimization, processes flow mapping and adequacy; • Reduction of CO2 emission.

9 9

Operational Simplification: • # of origin ports from 21 to 5 ports; • Pick up at supplier’s sites elimination; • # of lanes to be negotiated on BID from 147 to 35.

ASIA Consolidation Project – Results

Savings / Benefits: • $600K– Savings • Container Occupation (avg): 15% higher vs. PY; • Cargo availabity improvement throught higher

logistics efficiency; • Control and visibility improvement; • Data accuracy.

Previous

Current

International Multimodal Implementation (Air, Ocean, Truck)

• Allow companies to manage their supply chains more cost-effectively and quickly

• Alternative to conventional sailings and flight schedules

• Flexibility and more frequency to attend LATAM schedule

• Timely and economical option to keep transport on track

• Create direct transits under a single rate, which can translate into a cost savings compared to Air Freight

• Multimodal could potentially decrease Lead Time from 40 to 50 percent, compared to Ocean Freight

AIR OCEAN Intl Multimodal

Total Logistics LT: 10-15 days

Total Logistics LT: 60-65 days

Total Logistics LT: 30-35 days

11 11

Scenario Previus to Project 21 suppliers locatted at São Paulo area; High complexity to pick up coordination; No consolidation utilized, High LTL volume; Customs process at URUGUAIANA border; higher LTime and risk.

BR Consolidation to SMG Project – Overview

Identified Opportunity: A 3PL development to coordinate consolidation from BR to ARG Lanes and International Freight.

Delivered Results: Substantial reduction on OTR freight spend; Operational complexity reduction; FTL Vehicle occupation Optimization; Export Clearance process at “Customs warehouse – MIC/DTA”

reducing Customs LTime and risk.

2

1

The radius of the circles is approximately 60km.

Brazilian Suppliers

attending ARG market

385 Ops. 650.996

KG

3.331

M3

U$S 534.561

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Incoterm Review – Supplier 1 Pilot DAT Bonded (Bra and Arg volume)

# Items Scenario Volume

Units (SKUs) Current Spend

USD (EXW) Main Benefits Description

12 EXW to DAT(Bonded) 61.952.575 9.182.484 (2,8MM)/ 1,5 Days Inventory reduction

11 EXW to FOB 20.091.281 4.670.044 2 days Operational Ltime Reduction

FOB CFR BONDED

Logistics Complexity + + +

Compliance/Customs Risk ++ ++ ++

Cargo Handling Risk + - - -

Cargo Delivery Date + - - ++

Flexibility on shipment = - - - -

Responsibility ++ - - +

Air Freight = = ++

Lead Time + - ++

Inventory in Transit + + ++ Inventory Management + - - +

Cargo Disposal + ++ ++

Partial Nationalization/Call Off = = ++

Cash flow + = ++

Financial and Operational Analysis That was analysed different scenarios as: EXW to FOB and EXW to DAT(Bonded)

Operational Benefits

Strong Improvement

++

Moderate Improvement

+

No Change =

Moderate Decrease

-

Strong Decrease

- -

Final Recomendation:

To convert high unit movers (12 items) to DAT/Bonded Warehouse

model, driven by benefits previously detailed;

low unit movers (11 items) to FOB incoterm, driven by operational

lead time reduction.

US RI logistics network review - Overview

Scenario Previous to Project +500 RI vendors via two Brokers (US companies);

+700 Skus

20% of total mark up cost is related to US domestic freight: Inland from vendor locations to the consolidation Hub in

MIAMI; Currently LATAM utilizes mainly AF to move cargo for destination

countries, due to small volumes and planning strategy 80% of shipments to LATAM destinations are < 200Kgs with

no consolidation opportunity

Identified Opportunity: Review Logistics Network utilizing the best geography to support US

domestic consolidation; Consolidate cargo in the north east USA. JFK/EWR or PHL This initiative will be completely aligned with Regional Sourcing

strategy: “Broker Nationalization Strategy project” already initiated

FREIGHT and MARK UP cost reduction will be achieved

Low Volume

Medium white

High volume

Suppliers Location

Quality Assurance for key suppliers

Quality Assurance for Imported Items (China origin)

Local Sourcing

Coordination

Supplier

Purchase

Contact

TS / Sourcing

Send Report

Inspection

Send Report

Send STD

SGS Local and Origin teams coordinate the inspection.

Inform to: Local

Local

•Shipping Autorization – Supplier / Logistics •Request new operation •Reject

• SGS is responsible for the technical evaluation at origin China to guarantee that our Fashion&Home products

are in accordance with Avon’s requirements, before shipping to LATAM countries.