BC3406 Business Analytics Consulting

Semester 2, AY 2016/17
Paula’s Choice Report

Team Members

Koh Jia Cheng U1411105L

Cao Gaoxu U1320639H

Valerie Yeo Kai Yan U1411145C

Seminar Group: 01

Project Group: 04

Seminar Group Instructor: Professor Damien

Submission Date: 26 March 2017

TABLE OF CONTENTS

1. Executive Summary ........................................................................................................................................ 2

2. Challenge One: Marketing Strategy for product bundle ................................................................................ 2

3. Challenge Two: Location of Paula’s Choice’s next store ................................................................................ 3

4. Requirement One: Identify SKUs that PC should discontinue. ...................................................................... 4

4.1 Sample ....................................................................................................................................................... 4
4.2 Products ..................................................................................................................................................... 4

5. Sales Forecast for Top 15 SKUs (For 6,12 and 18 months window) ................................................................ 4

6. Stock Replenishment Model for the 3 Channels ............................................................................................. 5

7. Stock Purchase Model ..................................................................................................................................... 5

8. Conclusion and Limitations ............................................................................................................................ 5

Appendices .......................................................................................................................................................... 6
[1] Executive Summary ..................................................................................................................................... 6
Appendix 1.0: List of Challenges and Additional Requirements by Paula’s Choice ............................................... 6
[2] Challenge One: Marketing Strategy for product bundle ............................................................................... 7
Appendix 2.0 Rules Table from SAS Enterprise Minor .......................................................................................... 7
Appendix 2.1 Top 10 performing SKUs .................................................................................................................. 8
Appendix 2.2 Sales trend for each Bundle ............................................................................................................ 9
[3] Challenge Two: Location of Paula’s Choice’s next store ............................................................................. 10
Appendix 3.0 List of 28 Postal Districts in Singapore .......................................................................................... 10
Appendix 3.1 Customer and Sales from 28 Postal Districts in Singapore ............................................................ 11
Appendix 3.2 % of sales from online and retail stores ........................................................................................ 12
Appendix 3.3 Location of PC Main Competitors .................................................................................................. 13
[4] Requirement One: Identify SKUs that PC should discontinue. .................................................................... 14
Appendix 4.0 Samples (bottom 10%) .................................................................................................................. 14
Appendix 4.1 Products with zero sales (to be discontinued) .............................................................................. 14
Appendix 4.2 Remaining products (bottom 10% sales) ...................................................................................... 15
[5] Requirement Two: Forecast units of SKUs Sold. ......................................................................................... 16
appendix 5.2 6 months forecast (Jan 17 – Jun 17) for Top 15 SKUs by Sales Value ............................................ 17
appendix 5.3 12 months forecast (Jan 17 – Dec 17) for Top 15 SKUs by Sales Value ......................................... 18
appendix 5.4 18 months forecast (Jan 17 – Jun 18) for Top 15 SKUs by Sales Value .......................................... 19
appendix 5.6 Correlation results ......................................................................................................................... 20
appdendix 5.7 Linear Regression Results ............................................................................................................ 20
[6] Requirement three: Develop Stock Replenishment model. ........................................................................ 21
appendix 6.1 Safety Stock Level and Reorder Point for Top 15 SKUs for Beauty Collective ............................... 21
appendix 6.2 Safety Stock Level and Reorder Point for Top 15 SKUs for Front Porch ........................................ 22
appendix 6.3 Safety Stock Level and Reorder Point for Top 15 SKUs for Online Website .................................. 23
[7] Requirement fout: Develop projected stock model. ................................................................................... 24
Appendix 7.1 Stock Purchase Model for Jan 17 – Dec 17 .................................................................................... 24

1
1. EXECUTIVE SUMMARY

Paula's Choice Singapore (PC) aims to develop the best skincare and makeup community for all
with a commitment to customer advocacy and education. Through this report, we have identified
several insights and recommendations to address the two main challenges highlighted by PC; (1)
Identification of five combination of products, and (2) Possible location of new PC store in place
of their two existing stores. In addition, recommendations relating to the discontinuation of
SKUs and forecasting and stock replenishment model were also included.

2. CHALLENGE ONE: MARKETING STRATEGY FOR PRODUCT BUNDLE

In order to identify five suitable bundles, our team ran an association analysis on SAS Enterprise
Miner to generate the rules based on the online transactions (shown in Appendix 2.0). After
analysing the statistical results and from PC, we believe that the following five bundles can best
boost customer demand and sales revenue in the long run:

SKUs Description
Bundle 1: Customer’s Top Choice (Skin Balancing)
1. 2010 (Skin Perfecting 2% Aim: Meet customer’s needs and increase sales revenue.
BHA (Salicylic Acid) Rationale: This bundle contains cleanser, toner and liquid, which are the
Liquid) three basic steps can fulfill oily skin’s daily requirements and has high
2. 1151(Skin Balancing Oil- association rules. Customers who purchase both 2010 and 1151 are 67%
Reducing Cleanser likely to purchase 1350 as well. This bundle can help increase sales for PC
3. 1350 (Skin Balancing Pore- as SKU 2010 is the top selling SKU in 2016 (Appendix 2.1) and can further
Reducing Toner). introduce possible sales of 1350 and 1151.
Possible Promotion ($109)
If customer buy 2010 and 1151, they get $18 off to buy 1350.
Bundle 2: Customer’s Choice (Resist)
1. 7600 (Resist Optimal Aim: Meet customer’s needs and increase sales revenue.
Results Hydrating Rationale: This bundle contains cleanser, toner and cream, which are the
Cleanser) three basic process of skincare. These products are top 25% SKU where
2. 7670 (Resist Advanced customers who purchase from the Resist series have a high confidence
Replenishing Tone) (80%) with Moisture Boost Hydrating Treatment Cream, a product more
3. 3500 (Moisture Boost expensive than Resist cleanser and Toner. Thus it meets the demand of
Hydrating Treatment customers and can help boost sales.
Cream Possible Promotion ($99)
If customer buy 7670 and 3500, they can get $17 off 7600.
Bundle 3: For Men (PC4Men)
1. 8700 (PC4Men Face Wash) Aim: Attract and increase revenue from male customers
2. 8740 (PC4Men Nighttime Rationale: As the sales quantity of male product is increasing gradually
Repair) (Appendix 2.2) we would like to tap on this trend and their high confidence
3. 8730 (PC4Men Daytime (80%) and introduce a bundle just for them. This also allows PC to better
Protect SPF 30). penetrate the male skin care market as well.
Possible Promotion ($99)
If customers buy 8700 and 8740, they can get $15 off to buy 8730.
Bundle 4: New Product Sales
1. 9160 (Calm Sensitive Aim: Support and promotion of new product
Toner) Rationale: Calm collection was launched or relaunched in 2016, and the
2. 3700 (Calm Sensitive sales of SKUs in this collection is increasing. Given that the market reacted

2
 Serum) positively for these new products. We believed client would like to further
3. 9150 (Calm Sensitive promote them.
Cleanser ) Possible Promotion ($119)
If customer buy 9160 and 3700, they can get $15 off to buy 9150.
Bundle 5: Star products bundle
1. 8010(Clinical 1% Retinol Aim: Promote star products and build brand awareness
Treatment) Rationale:7770 is not only top 2 SKU, but also a star product that is
2. 7730(Resist BHA 9 featured in Women’s Weekly. 8010 is another star product that is seen
(Salicylic Acid)) Martha Stewart Living. This bundle has high confidence (about 60%) and
3. 7770(Resist C15 Super will be appealing to customer as they are well-known and credible. We
Booster) believed this bundle will help client increase sales.
Possible Promotion ($199)
If customer buy 7770 and 7730, they can get $18 off to buy 8010.

3. CHALLENGE TWO: LOCATION OF PAULA’S CHOICE’S NEXT STORE

Proposed Location: Punggol (Waterway Point)

In proposing this location, our team considered several factors including PC’s online customer
address, location of competitors, future developments at proposed location and the main target
audience of PC.
Using Paula’s Choice online customer address, our team analysed the number of transactions
and total sales from each district in Singapore (Appendix 3.0). Districts that had the greatest
sales include 19, 23,18, 22 and 5 (Appendix 3.1). In particular, district 19 which covers Hougang,
Punggol, Sengkang had not just the most customers but sales as well, almost 1.5 times more than
the next district, District 23.
Since the greatest proportion (59%) of Paula’s Choice revenue comes from their online store
(Appendix 3.2), our team believe that this data is significant in deciding which district their new
flagship store is at. Additionally, these factors below further support the proposed location:
A: Location of Paula’s Choice competitors
Having a location in Punggol (District 19) would allow Paula’s Choice to thrive as most of the
stores by their main competitors, Loreal and Estee Lauder are located at the central (District
1,2,6,7,9) as seen in Appendix 3.3. We also note that none of the competitors currently have a
store in District 19.
B: Development in the Punggol Estate
BTOs have continuously been ongoing and completed by the government in the Punggol Estate.
In fact, one of the newest BTO, Punggol Northshore Cove saw the strongest demand relative to
supply1. Thus the demographics of the new population would likely be 25-35 years of age, which
is the main target group of PC.
Furthermore, there would be ongoing developments in Punggol such as Punggol Regional Sports
Centre, , Punggol Creative Cluster and Two new-generation Neighbourhood Centres 2 . This
signals the desirability and development of Punggol which would ultimately draw an increasing
population and pool of potential target customers for Paula’s Choice in the near future.

1
http://www.todayonline.com/singapore/punggol-and-clementi-flats-draw-most-interest-first-bto-exercise-year
2
http://www.hdb.gov.sg/cs/infoweb/press-releases/corporate-pr-15012016-new-town-square-in-punggol-

3
4. REQUIREMENT ONE: IDENTIFY SKUS THAT PC SHOULD DISCONTINUE.

The main criterion in discontinuing any SKU would first be the total sales quantity and revenue
for that SKU in 2016. In particular SKUs that contributes to the bottom 10% of sales for all
PC’s channels were considered. We split the products into (1) Samples and (2) Products as the
nature of the two groups differ greatly.

4.1 SAMPLE

With reference to Appendix 4.0, sample SKUs to be discontinued would be 2769 and 7799. The
cost of production of these samples are not justified since none are bought by customers. For
other SKUs, although the quantity purchased is relative low (such as 7 units for 5809), we would
recommend PC to still keep them as they may lead to the actual purchase of the product.

4.2 PRODUCTS

16 products with zero sales are recommended to be discontinued since zero revenue is generated
from them. List of these products can be found in Appendix 4.1.

The next products with the lowest sales are listed below in Appendix 4.2. Interestingly, 7/10 of
these products are for male customers. While, they seem like they are underperforming but we
believe that PC should keep all PC4Men items to further tap into the male consumer market.
Also, the demand for 7 SKUs while little have been steadily increasing in 2016. If our bundle
Bundle 3: For Men (PC4Men) is able to attract more male customers. Demand and sales for
these products may increase. Alternatively, if PC decides not to venture into this market, then
these SKUs: 8747,8727,8737,8707,8717,8750 and 8760 should be discontinued.

Lastly, the remaining 3 SKUs from Appendix 4.2 should also be discontinued since they fall in
the bottom 10% of sales: 3357, 3257 and 92075.

5. SALES FORECAST FOR TOP 15 SKUS (FOR 6,12 AND 18 MONTHS WINDOW)

The team decided to focus on these 15 SKUs as they account for 43% of company sales (as
shown in Appendix 5.1). A linear regression was performed to find the expression that would
give the best fit line. The forecasts, description of the variables used and the linear regressions
results can be found in the Appendices. The linear regression line was found to be(as shown in
Appendix 5.5, 5.6 and 5.7):

Y = 0.933 * MMA - 0.0086 * Price - 0.24 * Promo + 0.21 * Month - 0.59 * Platform + 0.32

The linear regression line has a R^2 of 87.3%, which means that 87.3% of the variability around
the mean is explained by the model. The sales level for top 15 SKUs by sales value were
forecasted for the 6, 12 and 18 months window as shown in Appendix 5.2, 5.3 and 5.4

4
6. STOCK REPLENISHMENT MODEL FOR THE 3 CHANNELS

Similarly, a stock replenishment model was created for the top 15 SKUs for each of the 3
channels. To ensure the stock is within safe level, The lead time is set at 3 months and the
service level was set at 90%. The lead demand and safety stock was calculated using the 3
months moving-average from Oct 16 to Dec 16, while the safety stock is calculated by
multiplying the lead time demand with the NORMSINV of the 90% service level and the SQRT
of the 3 months lead time. The formula used to calculate the safety stock is as follows:
Safety Stock = standard deviation of error * service factor
AVERAGE(N3:P3) * NORMSINV($B$21) * SQRT($B$20).
The reorder point is then the sum of the safety stock, and the lead time demand.

7. STOCK PURCHASE MODEL

A stock purchase model was also developed while keeping in account the two constraints,

1. Max purchase order value 50% of trailing 3 months’ sales moving average
2. Minimum purchase quantity of each SKU

The purchase forecasts can be found in the Appendices while the Excel formula used to obtain
the forecasts is show below.
Reorder point = lead − time demand + safety stock

=IF(IF(N3>AVERAGE(K3:M3),AVERAGE(K3:M3),N3)<$AG70,$AG70,IF(N3>AVERAGE(K3:M3),AVE
RAGE(K3:M3),N3))

The original forecast is first compared to the 3 month’s sales moving average (3SMA) for the
SKU. If it is higher than 50% of 3SMA, the latter will be used (result 1). Result 1 will then be
compared to the MOQ, if it is lower than the MOQ, the MOQ will be used. Otherwise, the final
forecast will be Result 1. The 50% was not a factor of this equation as the numbers used are
quantities instead of sales and costs, and because the margins are given to be 50%.
Also, there are no SKUs within the Top 15 SKUs that require stocks of more than 3 times their 3
month’s sales moving average.

8. CONCLUSION AND LIMITATIONS

In this project, we proposed 5 bundles and 3 models to help our client provide better value to
customers as well as to save operating cost. However, there are also some limitations in our
recommendation. Because we have some assumptions, some models may not really work in
reality, but we believe that a deeper analysis can be done if we have more than one-year sales
data and more other information, such as holding cost, and we can develop better models based
on the same methods.

5
APPENDICES

[1] EXECUTIVE SUMMARY

APPENDIX 1.0: LIST OF CHALLENGES AND ADDITIONAL REQUIREMENTS BY PAULA’S CHOICE

Challenges:

1. Develop a marketing strategy to promote five combinations (or bundles or sets) of

products (represented by stock-keeping units); and
2. Identify the location of Paula’s Choice’s next physical store in Singapore.

Additional Requirements:

1. Identify SKUs that Paula’s Choice should discontinue.

2. Forecast of units of SKUs to be sold
a. The channels for sales to consider are retail, online
b. Paula’s Choice forecasts sales using the following windows: 6 months, 12 months,
18 months forward.
3. Develop a stock (i.e. SKU) replenishment model for stock levels held at each of these
channels. This is the model to predict what inventory to hold at the 3 locations
a. Channels to consider: Online, Store BC, and Store FP.
b. Assume:
i. Monthly Replenishment
ii. Single Trip
iii. No Space Constraints
4. Develop a projected stock (SKU) model for forecasting stock to purchase from our main
head office each month
a. Assume a three (3) month lag time for delivery of orders. For example, orders for April are
locked in 31 January
b. Constraints to consider includes:
i. Maximum purchase order value is 50% of trailing three (3) months sales moving
average (3SMA) of retail sales.
ii. Minimum purchase quantity of each SKU
iii. Identify the top 10 products that require three times (i.e. 3x) the stock level of
3SMA sales.

6
[2] CHALLENGE ONE: MARKETING STRATEGY FOR PRODUCT BUNDLE

APPENDIX 2.0 RULES TABLE FROM SAS ENTERPRISE MINOR

We do the preprocessing on the LineItemOrders dataset by removing all the samples and SKUs
that were not recorded, since they cannot be bundled. After preprocessing, most of the orders
only contain one or two items in total, therefore the support for all 3-items rule are quite low. In
this case, the confidence level should be mainly considered. The five bundles we proposed all
have high confidence level. Bundle 2 and 4 have 80 % confidence, while bundle 1, 3 and 5 have
67% of confidence. The high confidence means that customers are more willingly to buy all
these items together. Besides confidence level, we also looked at the total sales of SKU
(Appendix 2.1), SKU 2010 in bundle 1 has the highest sale which is about 2 time more than
second highest one. The other SKUs in bundle 2 and 5 also have high ranking in total sales.
However, SKUs in bundle 3 and 4 have low sales but this model is proposed because the
qualitative reasons behind.

7
APPENDIX 2.1 TOP 10 PERFORMING SKUS

SKU Name Qty Price Sales

1 2010 Skin Perfecting 2% BHA (Salicylic Acid) Liquid 1995 43 85785

2 7770 Resist C15 Super Booste 1043 68 70924

3 7820 Resist Daily Pore-Refining Treatment 2% BHA 811 48 38928

(Salicylic Acid)

4 8010 Clinical 1% Retinol Treatment 379 88 33352

5 7730 Resist BHA 9 (Salicylic Acid) 540 61 32940

6 7980 Resist 10% Niacinamide Booster 519 61 31659

7 7740 Resist Ultra-Light Super Antioxidant Concentrate 564 55 31020

Serum

8 7760 Resist Super-Light Daily Wrinkle Defense SPF 30 555 48 26640

9 1350 Skin Balancing Pore-Reducing Toner 761 34 25874

10 7860 Resist Hyaluronic Acid Booster 344 74 25456

8
APPENDIX 2.2 SALES TREND FOR EACH BUNDLE

Bundle 3. Man collection

25

20
8700
15
8740
10 8730

Trend line
5

0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

Bundle 4. Calm collection

25

20

15 9150

3700
10
9160
5 Trend line

0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
-5

9
[3] CHALLENGE TWO: LOCATION OF PAULA’S CHOICE’S NEXT STORE

APPENDIX 3.0 LIST OF 28 POSTAL DISTRICTS IN SINGAPORE

10
APPENDIX 3.1 CUSTOMER AND SALES FROM 28 POSTAL DISTRICTS IN SINGAPORE

Paula’s choice top 5 districts:

1. 19 (Hougang, Punggol, Sengkang)

2. 23 (Bukit Batok, Choa Chu Kang, Hillview Avenue, Upper Bukit Timah)
3. 18 (Pasir Ris, Simei, Tampines)
4. 22 (Boon Lay, Jurong, Tuas)
5. 5 (Buona Vista, Dover, Pasir Panjang, West Coast)

11
APPENDIX 3.2 % OF SALES FROM ONLINE AND RETAIL STORES

Sales Revenue
Front Porch (0.7%)

Beauty Collectve
(33.4%)

Online (59%)

1. Online: $665952 (59%)

2. BP: $381424.4 (34%)
3. FP: $80543.33 (7%)

12
APPENDIX 3.3 LOCATION OF PC MAIN COMPETITORS

Competitor 1: L’OREAL
Generally centralised at District: 1,2,6,7,9

Competitor 2: Estee Lauder’s Locations:

Also centralised at District: 1,2,6,7,9
More widespread at District 22 (O), District 25 (Q), District 18 (A), District 8(J), District 15 ®

13
[4] REQUIREMENT ONE: IDENTIFY SKUS THAT PC SHOULD DISCONTINUE.

APPENDIX 4.0 SAMPLES (BOTTOM 10%)

Sample Name Qty
1 2769 Whitening Mask 0
2 7799 Resist Weekly Retexturizing Foaming Treatment 4% BHA 0
3 5809 Resist Retinol Skin-Smoothing Body Treatment 7
4 7969 Resist Whitening Essence 16
5 5569 Clinical Ultra-Rich Soothing Body Butter 23
6 7629 Resist Triple-Action Dark Spot Eraser 7% AHA (Glycolic Acid) 30
7 9129 Calm Sensitive Toner (Normal / Dry) 30

APPENDIX 4.1 PRODUCTS WITH ZERO SALES (TO BE DISCONTINUED)

SKU Product Name Total Price Sales
1 9908 Holiday GWP - Mirror 0 0 0
2 9940 PC4MEN Dopp Kit Bag 0 0 0
3 91501 Resist Anti-Aging Serum Foundation (Matt 0) 0 49 0
4 91511 Resist Anti-Aging Serum Foundation (Matt 1) 0 49 0
5 91521 Resist Anti-Aging Serum Foundation (Matt 2) 0 49 0
6 91531 Resist Anti-Aging Serum Foundation (Matt 3) 0 49 0
7 91541 Resist Anti-Aging Serum Foundation (Matt 4) 0 49 0
8 91551 Resist Anti-Aging Serum Foundation (Matt 5) 0 49 0
9 91561 Resist Anti-Aging Serum Foundation (Matt 6) 0 49 0
10 91571 Resist Anti-Aging Serum Foundation (Matt 7) 0 49 0
11 91580 Resist Smoothing Primer Serum SPF 30 0 43 0
12 91587 Resist Smoothing Primer Serum SPF 30 0 15 0
13 91641 Resist Flawless Finish Pressed Powder (Porcelain/Fair) 0 24 0
14 91651 Resist Flawless Finish Pressed Powder (Fair/Light) 0 24 0
15 91661 Resist Flawless Finish Pressed Powder (Light/Medium) 0 24 0
16 91671 Resist Flawless Finish Pressed Powder (Medium/Tan) 0 24 0

14
APPENDIX 4.2 REMAINING PRODUCTS (BOTTOM 10% SALES)

SKU Product Name Total Price Sales
1 3357 Skin Balancing Super Antioxidant Concentrate Serum 1 15 15
2 8747 PC4Men Nighttime Repair 3 15 45
3 8727 PC4Men Soothe + Smooth Treatment 2% BHA 3 17 51
4 8737 PC4Men Daytime Protect 4 15 60
5 8707 PC4Men Face Wash 6 12 72
6 8717 PC4Men Shave 7 12 84
7 3257 Skin Recovery Super Antioxidant Concentrate Serum 8 15 120
8 8750 PC4Men Lip Balm SPF 50 21 10 210
9 8760 PC4Men Body Wash 8 29 232
10 92075 Resist Anti-Aging Lip Gloss SPF 40 Clearshine 8 29 232

15
[5] REQUIREMENT TWO: FORECAST UNITS OF SKUS SOLD.

APPENDIX 5.1 TOP 15 SKUS BY SALES VALUE

% of Total Cumulative
No. SKU Name Cost 2016 Sales Sales %

1 2010 Skin Perfecting 2% BHA (Salicylic Acid) Liquid $ 21.50 $ 76,927 7.1% 7.1%

2 7770 Resist C15 Super Booster $ 34.00 $ 65,688 6.0% 13.1%

Resist Daily Pore-Refining Treatment 2% BHA

3 7820 (Salicylic Acid) $ 24.00 $ 37,104 3.4% 16.5%

4 7730 Resist BHA 9 (Salicylic Acid) $ 30.50 $ 31,293 2.9% 19.4%

5 8010 Clinical 1% Retinol Treatment $ 44.00 $ 29,480 2.7% 22.1%

Resist Ultra-Light Super Antioxidant

6 7740 Concentrate Serum $ 27.50 $ 28,380 2.6% 24.7%

7 7980 Resist 10% Niacinamide Booster $ 30.50 $ 24,888 2.3% 26.9%

8 7860 Resist Hyaluronic Acid Booster $ 37.00 $ 23,902 2.2% 29.1%

Resist Super-Light Daily Wrinkle Defense SPF

9 7760 30 $ 24.00 $ 23,184 2.1% 31.3%

10 1350 Skin Balancing Pore-Reducing Toner $ 17.00 $ 22,950 2.1% 33.4%

11 3400 Skin Balancing Invisible Finish Moisture Gel $ 21.00 $ 22,092 2.0% 35.4%

12 7780 Resist Weightless Advanced Repairing Toner $ 19.00 $ 21,698 2.0% 37.4%

13 2040 Skin Perfecting 2% BHA (Salicylic Acid) Gel $ 21.50 $ 20,726 1.9% 39.3%

14 6000 Clear Acne Pore Normalizing Cleanser $ 13.50 $ 20,385 1.9% 41.2%

Clear Extra Strength Acne Exfoliating

15 6210 Treatment 2% BHA (Salicylic Acid) $ 21.50 $ 19,866 1.8% 43.0%

16
APPENDIX 5.2 6 MONTHS FORECAST (JAN 17 – JUN 17) FOR TOP 15 SKUS BY SALES VALUE
SKU Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Total
2010 191.5 183.5 176.1 178.0 174.4 171.5 1075.1
7770 89.1 89.6 94.7 90.8 92.0 92.7 548.8
7820 70.3 72.4 78.4 75.1 77.2 78.6 451.8
7730 46.2 44.0 41.5 46.9 47.8 48.8 275.3
8010 33.1 32.7 36.6 37.1 39.0 40.8 219.2
7740 53.9 58.1 64.6 61.0 63.9 65.6 367.1
7980 52.5 50.3 50.0 53.5 54.4 55.6 316.4
7860 35.0 37.4 41.2 40.9 43.4 45.2 243.1
7760 55.0 55.2 56.7 58.2 59.8 61.2 346.1
1350 57.5 59.8 60.2 61.9 63.9 65.0 368.3
3400 51.4 53.6 58.1 57.2 59.6 61.4 341.2
7780 49.3 45.9 50.1 51.8 53.1 55.3 305.6
2040 35.2 37.9 37.5 40.8 43.2 44.7 239.4
6000 70.5 72.1 70.8 73.2 74.7 75.4 436.6
6210 38.6 42.4 39.4 43.9 46.1 47.2 257.6

17
APPENDIX 5.3 12 MONTHS FORECAST (JAN 17 – DEC 17) FOR TOP 15 SKUS BY SALES VALUE

Aug- Sep- Oct- Nov- Dec- Jul 17 - Jan 17 - Jan 17 -

SKU Jul-17 17 17 17 17 17 Dec 17 Jun 17 Dec 17

2010 171.4 169.3 169.0 168.1 168.5 167.4 1013.7 1075.1 2088.7

7770 93.4 94.1 96.1 97.1 99.6 100.5 580.7 548.8 1129.5

7820 80.0 81.4 84.1 85.7 88.9 90.4 510.5 451.8 962.4

7730 52.5 54.1 57.4 60.0 63.7 65.9 353.6 275.3 628.8

8010 43.5 45.4 48.7 51.1 54.8 56.9 300.3 219.2 519.5

7740 67.3 69.1 72.1 74.0 77.5 79.2 439.1 367.1 806.2

7980 58.7 60.2 63.4 65.7 69.3 71.2 388.6 316.4 705.0

7860 47.8 49.8 53.2 55.5 59.3 61.5 327.0 243.1 570.2

7760 63.9 65.6 68.8 71.0 74.6 76.6 420.5 346.1 766.6

1350 67.9 69.6 72.8 75.1 78.7 80.8 445.0 368.3 813.3

3400 63.7 65.7 68.9 71.2 74.9 76.9 421.3 341.2 762.5

7780 58.3 60.2 63.7 66.3 70.1 72.4 390.9 305.6 696.5

2040 48.3 50.6 54.2 57.1 61.2 63.6 335.0 239.4 574.4

6000 78.2 79.6 82.5 84.7 88.0 89.8 502.9 436.6 939.5

6210 50.9 53.0 56.6 59.4 63.4 65.8 349.1 257.6 606.7

18
APPENDIX 5.4 18 MONTHS FORECAST (JAN 17 – JUN 18) FOR TOP 15 SKUS BY SALES VALUE

May- Jan 18 - Jan 17 - Jan 17 -

SKU Jan-18 Feb-18 Mar-18 Apr-18 18 Jun-18 Jun 18 Dec 17 Jun 18

2010 168.3 168.4 170.3 171.8 173.5 175.0 1027.2 2088.7 3115.9

7770 103.2 103.9 108.4 111.5 114.7 118.0 659.8 1129.5 1789.3

7820 93.7 94.6 99.9 103.5 107.2 111.1 610.1 962.4 1572.5

7730 69.9 71.0 77.2 81.3 85.6 90.0 475.0 628.8 1103.8

8010 60.8 61.9 68.1 72.2 76.3 80.7 420.0 519.5 939.5

7740 82.8 83.8 89.5 93.4 97.3 101.4 548.3 806.2 1354.4

7980 75.0 76.1 82.1 86.1 90.1 94.4 503.9 705.0 1208.9

7860 65.4 66.5 72.7 76.8 81.0 85.4 447.9 570.2 1018.1

7760 80.3 81.4 87.4 91.4 95.4 99.7 535.6 766.6 1302.2

1350 84.6 85.7 91.7 95.7 99.8 104.1 561.6 813.3 1374.9

3400 80.8 81.8 87.9 91.9 96.0 100.4 538.8 762.5 1301.4

7780 76.4 77.6 83.9 88.1 92.4 96.9 515.3 696.5 1211.7

2040 67.9 69.2 75.8 80.2 84.6 89.4 467.1 574.4 1041.5

6000 93.5 94.5 100.2 104.0 108.0 112.1 612.2 939.5 1551.7

6210 70.0 71.2 77.7 82.1 86.5 91.1 478.7 606.7 1085.4

19
APPDENDIX 5.5 VARIABLES USED FOR LINEAR REGRESSION MODEL

Variable Description
Platform Whether the item was sold through Beauty Collective (BC), Front Porch (FP) or through the Online
platform
Month Month when sale was made
Promo Whether the SKU was sold in a promotional period. Promotions are categorized into 3 categories:
Heavy Promotion (Feb, Dec), Normal Promotion () and No Promotion
Price Price of SKU
Qty Quantity of SKU sold per month
3m MA The latest 3 months Moving Average of the SKU (in units)

APPENDIX 5.6 CORRELATION RESULTS

APPDENDIX 5.7 LINEAR REGRESSION RESULTS

20
[6] REQUIREMENT THREE: DEVELOP STOCK REPLENISHMENT MODEL.

APPENDIX 6.1 SAFETY STOCK LEVEL AND REORDER POINT FOR TOP 15 SKUS FOR BEAUTY
COLLECTIVE
SKU Lead time demand Safety Stock Reorder point
2010 121.2 268.9355 390.1
7770 44.5 98.77346 143.3
7820 40.4 89.69287 130.1
7730 27.8 61.79417 89.6
8010 20.5 45.39733 65.8
7740 23.4 51.9017 75.3
7980 36.7 81.50301 118.2
7860 20.9 46.31408 67.2
7760 40.3 89.41048 129.7
1350 41.9 92.98775 134.9
3400 22.4 49.82818 72.3
7780 28.9 64.2476 93.2
2040 27.3 60.51267 87.8
6000 42.2 93.73937 136.0
6210 22.6 50.09346 72.7

21
APPENDIX 6.2 SAFETY STOCK LEVEL AND REORDER POINT FOR TOP 15 SKUS FOR FRONT
PORCH

SKU Lead time demand Safety Stock Reorder point

2010 37.2 82.66868 119.9
7770 22.5 50.00103 72.5
7820 9.6 21.34573 31.0
7730 6.5 14.40444 20.9
8010 5.7 12.61829 18.3
7740 10.1 22.3404 32.4
7980 11.1 24.54125 35.6
7860 8.1 17.88235 25.9
7760 8.0 17.77853 25.8
1350 10.9 24.23166 35.1
3400 14.5 32.28411 46.8
7780 7.9 17.63799 25.6
2040 12.0 26.54456 38.5
6000 10.7 23.86127 34.6
6210 8.1 17.87921 25.9

22
APPENDIX 6.3 SAFETY STOCK LEVEL AND REORDER POINT FOR TOP 15 SKUS FOR ONLINE
WEBSITE

SKU Lead time demand Safety Stock Reorder point

2010 392.7 871.7871 1264.5
7770 206.3 457.8764 664.2
7820 171.0 379.589 550.6
7730 97.4 216.2939 313.7
8010 76.3 169.2732 245.5
7740 143.1 317.6641 460.8
7980 105.1 233.2932 338.4
7860 84.7 187.975 272.7
7760 118.6 263.3274 382.0
1350 124.7 276.8857 401.6
3400 126.1 279.9232 406.0
7780 108.5 240.8307 349.3
2040 71.4 158.5842 230.0
6000 160.4 355.9694 516.3
6210 89.8 199.3392 289.1

23
[7] REQUIREMENT FOUT: DEVELOP PROJECTED STOCK MODEL.

APPENDIX 7.1 STOCK PURCHASE MODEL FOR JAN 17 – DEC 17

Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec-
SKU 17 17 17 17 17 17 17 17 17 17 17 17
2010 192 184 176 178 174 171 171 169 169 168 168 167
7770 89 90 95 91 92 92 92 93 93 95 96 98
7820 70 72 78 74 75 77 77 79 80 82 84 86
7730 100 100 100 100 100 100 100 100 100 100 100 100
8010 33 32 34 34 35 38 39 41 43 46 48 52
7740 130 130 130 130 130 130 130 130 130 130 130 130
7980 52 50 48 51 51 53 55 56 58 61 63 66
7860 36 37 39 38 40 42 43 45 48 50 53 56
7760 130 130 130 130 130 130 130 130 130 130 130 130
1350 57 60 58 59 61 62 64 66 68 70 73 76
3400 51 53 56 54 56 58 59 62 64 66 69 72
7780 49 45 47 48 49 52 53 56 58 61 63 67
2040 36 37 36 37 39 41 43 45 48 51 54 57
6000 70 72 69 71 72 73 74 76 78 80 82 85
6210 63 63 63 63 63 63 63 63 63 63 63 63

24
Paula’s Choice
Project

-Present by Group 04
 Recommended Bundles
Bundle SKUs Marketing Strategy
1 Aim: Meet customer’s needs and increase sales revenue.
2010 (Skin Perfecting 2% BHA (Salicylic Acid) Liquid)
1151(Skin Balancing Oil-Reducing Cleanser) Rationale: Top sales product, high confidence, basic

1350 (Skin Balancing Pore-Reducing Toner) Price :$109

2 Aim: Meet customer’s needs and increase sales revenue.

7600 (Resist Optimal Results Hydrating Cleanser)
7670 (Resist Advanced Replenishing Tone) Rationale: Top sales product, high confidence, basic
3500 (Moisture Boost Hydrating Treatment Cream ) Price :$109
3 Aim: Attract and increase revenue from male customers
8700 (PC4Men Face Wash)
8740 (PC4Men Nighttime Repair) Rationale: Enter male market, high confidence,
8730 (PC4Men Daytime Protect SPF 30). Price : $99
4 Aim: Support and promotion of new product
9160 (Calm Sensitive Toner)
3700 (Calm Sensitive Serum) Rationale: Positive reaction from the market.
9150 (Calm Sensitive Cleanser )
Price : $119
5 Aim: Promote Star Products and build brand awareness
8010(Clinical 1% Retinol Treatment)
7730(Resist BHA 9 (Salicylic Acid)) Rationale: Well-known and creditable, positive feedback
7770(Resist C15 Super Booster)
Price : $119
Location of new store

District 19: Hougang, Punggol, Sengkang

Mall: Waterway Point

- No competitors nearby
- Increasing number of target
market (25-35) moving in due to
Build-to-orders
- Future developments
 SKUs to discontinue:
Assumption: Bottom 10%
SKU Sample Name Qty
Samples: 2769, 7799
1 2769 Whitening Mask 0
2 7799 Resist Weekly Retexturizing Foaming Treatment 4% BHA 0 Note: Sample not discontinued
3 5809 Resist Retinol Skin-Smoothing Body Treatment 7 as long as qty > 1 as it could
4 7969 Resist Whitening Essence 16 lead to sale of actual product
5 5569 Clinical Ultra-Rich Soothing Body Butter 23
6 7629 Resist Triple-Action Dark Spot Eraser 7% AHA (Glycolic Acid) 30
7 9129 Calm Sensitive Toner (Normal / Dry) 30
Products:
3357, 3267
SKU Product Name Total $ Sales
1 3357 Skin Balancing Super Antioxidant Concentrate 1 15 15
And 92075
Serum
2 8747 PC4Men Nighttime Repair 3 15 45
3 8727 PC4Men Soothe + Smooth Treatment 2% BHA 3 17 51 Note: PC4Men not
4 8737 PC4Men Daytime Protect 4 15 60 discontinued due to
5 8707 PC4Men Face Wash 6 12 72 increasing demand
6 8717 PC4Men Shave 7 12 84 and potential of male
consumer market
7 3257 Skin Recovery Super Antioxidant Concentrate Serum 8 15 120
8 8750 PC4Men Lip Balm SPF 50 21 10 210
9 8760 PC4Men Body Wash 8 29 232
10 92075 Resist Anti-Aging Lip Gloss SPF 40 Clearshine 8 29 232
 No SK % of Total Cumulative
. U Name Cost 2016 Sales Sales %
201 Skin Perfecting 2% BHA
1 0 (Salicylic Acid) Liquid $ 21.50 $ 76,927 7.1% 7.1%
777
2 0 Resist C15 Super Booster $ 34.00 $ 65,688 6.0% 13.1%
Resist Daily Pore-Refining
Top 15 SKUs by Sales Value 782
3 0
Treatment 2% BHA (Salicylic
Acid) $ 24.00 $ 37,104 3.4% 16.5%
773
4 0 Resist BHA 9 (Salicylic Acid) $ 30.50 $ 31,293 2.9% 19.4%
• Focused on the top 15 SKUs which 801 Clinical 1% Retinol
could create the most significant impact 5 0 Treatment
Resist Ultra-Light Super
$ 44.00 $ 29,480 2.7% 22.1%

on the company’s performance in terms 774 Antioxidant Concentrate

of: 6 0 Serum $ 27.50 $ 28,380 2.6% 24.7%
• sales forecasting 798 Resist 10% Niacinamide
7 0 Booster $ 30.50 $ 24,888 2.3% 26.9%
• inventory optimization as well as, 786 Resist Hyaluronic Acid
• purchase forecasting 8 0 Booster $ 37.00 $ 23,902 2.2% 29.1%
776 Resist Super-Light Daily
• as these 15 SKUs comprises 43% of 9 0 Wrinkle Defense SPF 30 $ 24.00 $ 23,184 2.1% 31.3%
total company sales 135 Skin Balancing Pore-
10 0 Reducing Toner $ 17.00 $ 22,950 2.1% 33.4%
Top 10 SKUs by Sales Value
Sales Forecast for 6, 12, 18
SKU Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17
months
• Linear regression performed using the following 2010 191.5 183.5 176.1 178.0 174.4 171.5
variables:
7770 89.1 89.6 94.7 90.8 92.0 92.7
• 3 month’s moving average, price of SKU,
promotion period, month and platform (BC, FP 7820 70.3 72.4 78.4 75.1 77.2 78.6
or Online)
7730 46.2 44.0 41.5 46.9 47.8 48.8
• The linear regression line is as follows:
• Y = 0.93 * 3MMA - 0.0086* Price - 0.24*Promo 8010 33.1 32.7 36.6 37.1 39.0 40.8
+ 0.21*Month - 0.59*Platform + 0.32
• The model has a R^2 of 83.7%, which implies that Overall 6 month’s Sales Forecast (in units)
83.7% of the variability around the mean is
explained by the model
 SKU Lead time Safety Reorder SK Lead time Safety Reorder
Safety Stock and Reorder Point demand Stock point
201
U demand
37.2
Stock
82.66868
point
119.9
201 121.2 268.9355 390.1
0 0
777 44.5 98.77346 143.3 777 22.5 50.00103 72.5
• The safety stock and reorder point was also 0 0

calculated for each of the 3 channels using 782 40.4 89.69287 130.1 782 9.6 21.34573 31.0
0 0
the following formula: 773 6.5 14.40444 20.9
773 27.8 61.79417 89.6
0 0
• Safety Stock = Standard deviation of error * service factor
801 20.5 45.39733 65.8 801 5.7 12.61829 18.3
• Reorder point = lead-time demand + safety stock 0 0

Safety stock and Reorder point for BC Safety stock and Reorder point for FP

Purchase Forecast
Model SKU Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17
2010 192 184 176 178 174 171
• A purchase forecast model was also developed by 7770 89 90 95 91 92 92
7820 70 72 78 74 75 77
taking into account the 2 constraints given 7730 100 100 100 100 100 100
• The model ensures that the final recommendation 8010 33 32 34 34 35 38

is below 50% of the trailing 3 month’s Sales Moving

Average, and is above the Minimum Purchase SKU Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17
Quantity given by the HQ 2010 171 169 169 168 168 167
7770 92 93 93 95 96 98
• Amongst the top 15 SKUs, there are no items that 7820 77 79 80 82 84 86
require purchases of more than 3 times their 3 7730 100 100 100 100 100 100
month’s Sales Moving Average 8010 39 41 43 46 48 52

Purchase forecast for HQ from Jan 17 – Dec 17