Case Studies

Tech Makeover

A hair-care company boosts profits, increases productivity and improves customer service by automating its sales, accounting and order-fulfillment operations.
This story appears in the June 2005 issue of BizTech Magazine.

 

Anthony Mashkovich, Director of Information Technology, and Heinz Bieler, General Manager and Executive Vice President, Schwarzkopf Inc.

Schwarzkopf Inc. wants everyone in America to have a good hair day.

 

For three decades Schwarzkopf Inc., which specializes in high-end hair-care products for salons, has been trying to crack the lucrative $2.2 billion U.S. market for salon hair-care products, where it goes head-to-head against well-known brands such as L'Oreal, Redken, Paul Mitchell and Procter & Gamble's Wella products. So far, Schwarzkopf, which has 77 employees, has increased the number of U.S. salons carrying its products from about 1,000 in 1993 to 30,000 today. And technology has played a big part in that success.

 

Yearly revenue has more than doubled over the last four years, from $24 million to about $50 million, with the help of wireless technology.

Four years ago, the company's technology infrastructure was as outdated as a beehive hairdo. Now profits are soaring, thanks to a technology infusion that has automated its sales, accounting and order-fulfillment processes, resulting in improved customer service, increased productivity and lower overhead costs. Yearly revenue has more than doubled over the last four years, from $24 million to about $50 million today, says Heinz Bieler, general manager and executive vice president of Schwarzkopf's U.S. company.

 

"Without the technology, our company would not have made this major performance improvement," says Bieler, who joined the company in 1993. "When I took over, our organization didn't have a technology plan. We used the famous pencil behind the ears with the order sheet. Now everything is automated. Having good people and quality products is most important, but you definitely have to have good technology to survive."

 

Schwarzkopf Inc., launched in 1978, is based in Culver City, Calif., but its roots are in Hamburg, Germany, where its head office, Schwarzkopf Professional, is located. Schwarzkopf Inc. is a stand-alone, privately owned company licensed to market and sell Schwarzkopf Professional's hair-care line in America, Bieler says. Under the license, the American company gives a cut of its revenue to the larger German company. In return, Schwarzkopf Professional develops new hair-care products and creates marketing strategies for both. Beyond that, the U.S. company receives no financial support from Schwarzkopf Professional for marketing or infrastructure costs, Bieler says.

 

Schwarzkopf Professional has a strong customer base in Europe and sells its products in 80 countries. Worldwide, it ranks among the top four selling brands in professional salons, says Ryan Brightwell, an analyst with Datamonitor, a London research firm. "Schwarzkopf is a brand that is globalizing successfully."

 

But whether that translates into success in America depends on how well company executives continue to execute its business strategy, Brightwell adds.

 

Since 1993, revenue of the U.S. company has increased tenfold, from $5 million to $50 million. But that's still a small portion of the U.S. salon hair-care-product market, which reached $2.2 billion in sales in 2003, according to the market research firm Kline & Company in Little Falls, N.J.

 

Gray Heads Mean Business

 

America's aging population, combined with the company's recent IT investments, puts Schwarzkopf Inc. in a good position to grab a larger piece of the market, Bieler says. Sales have grown 20 percent annually for the past four years, and he expects that trend to continue.

 

"The Baby Boomer generation is getting older," Bieler explains. "Women, in particular, want to avoid the gray factor, so our hair colors are strong and hot."

 

Anthony Mashkovich, Director of Information Technology, Schwarzkopf Inc.

To capitalize on this trend, Schwarzkopf Inc. depends on technology. Until four years ago, employees handled everything on ­paper, recalls Anthony Mashkovich, Schwarzkopf Inc.'s IT director. Sometimes the wrong products or the wrong quantities were shipped to customers.

 

To combat that, the company purchased wireless handheld devices with bar-code scanners for warehouse workers to fill orders. These devices display customer orders and workers scan the bar codes as they place items in boxes. If they put the wrong products or wrong quantity in boxes, the handheld devices give off a warning.

 

"It's cut down on mistakes," Mashkovich says.

 

Order placement was the next step in automation. Salespeople used to write up orders by hand or phone them in. Purchasing then sent the orders to the warehouse. Two years ago, the company armed its 29 salespeople with personal digital assistants to send orders wirelessly to headquarters, Mashkovich says. The

 

old process required at least two days. Now, a salesperson can send an order at 11 a.m., the warehouse is ready to box it within 30 minutes and the order ships the same day.

 

Such efficiencies have cut costs, allowing the company to reduce its purchasing staff from four people to one, Mashkovich says. Plus, salespeople spend less time with paperwork and more time securing new accounts. "They gain an hour a day to do more selling," he says.

 

To further improve customer service, the company developed a Web site that allows its distributors to order products online. With everything automated, errors have been reduced and delivery times are quicker, Mashkovich says.

 

Linear Hair, a salon in Irvine, Calif., notices the difference. When salon coordinator Sommer Shankle places an order on Monday, it always arrives the next day, much faster than the competition. At her previous job, product deliveries took several weeks. "The next day is pretty good," she says. "That way, we are always in stock."

 

That's important because Schwarzkopf has become the salon's primary hair-care line, says assistant manager Amy Enrile. "Schwarzkopf's hair-care line is the best we have," Enrile says. "Its hair colors maintain well, and its shampoos and conditioners are flying off the shelves. It's a No. 1 hit with our clients."

 

Shaping Up the Network

 

Once the sales and distribution networks were in place, the company focused on beefing up its infrastructure. When Mashkovich joined Schwarzkopf Inc. five years ago, the company ran on two servers. Everything crawled at a snail's pace, he recalls. He has since upgraded and increased the number of servers to about a dozen, housing the company's accounting system, e-mail, and file and print services on different servers. He also improved network bandwidth and purchased new desktop and notebook computers for the staff.

 

Today, the company invests about $150,000 to $200,000 a year on new technology. The streamlined operations resulting from those investments have allowed the company to increase profits without increasing the number of employees and have given the sales force more time to pursue new business and improve customer service, says Bieler. With the automated sales and distribution network in place, Bieler believes his company is poised for even more growth. He is confident that he can take business away from his competitors.

 

"We always operate on a long-term plan," he says. "I want to double the business, and longer term, become the major product player in the market."

 

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