Avon 2010 Annual Report Download - page 33

understand the drivers of value for our Representatives. We measure our investment in RVP as the incremental cost to provide these value-
enhancing initiatives. During 2010, we invested approximately $83 incrementally in our Representatives through RVP by continued
implementation of our Sales Leadership program, enhanced incentives, increased sales campaign frequency, improved commissions and new
e-business tools. Investing in RVP will continue to be a key strategy. We will continue to look for ways to improve the earnings opportunity
for Representatives through various means, including the following:
• Evaluating optimum discount structures in select markets;
• Continuing the roll-out of our Sales Leadership Program, which offers Representatives an enhanced career opportunity;
• Strategically examining the fee structure and brochure costs to enhance Representative economics;
• Recalibrating the frequency of campaigns to maximize Representative selling opportunities;
• Service Model Transformation initiatives;
• Applying the optimal balance of advertising and field investment in our key markets; and
• Web enablement for Representatives including on-line training enhancements.
While the reward and effort will be different within our global portfolio of businesses, we believe that web enablement is a key element to
reduce Representative effort worldwide. We will continue to focus on improving Internet-based tools for our Representatives.
Product Line Simplification
During 2006, we began to analyze our product line, under our PLS program, to develop a smaller range of better performing, more
profitable products. The continued goal of PLS is to identify an improved product assortment to drive higher sales of more profitable
products. During 2007, we completed the analysis of our product portfolio, determined the appropriate product assortment going forward
and made decisions regarding the ultimate disposition of products that will no longer be part of our improved product assortment (such as
selling at a discount, donation, or destruction).
Sales and marketing benefits have accounted for most of our estimated projected benefits. Improving our product assortment has allowed,
and will continue to allow us, to increase exposure and improve presentation of the remaining products within our brochure, which is
expected to yield more pleasurable consumer shopping experiences, easier Representative selling experiences, and greater sales per brochure
page. A second source of benefits from PLS results from “transferable demand.” Transferable demand refers to the concept that when
products with redundant characteristics are removed from our product assortment, some demand from the eliminated products will transfer
to the remaining products that offer similar or comparable product characteristics. As part of PLS, when we have identified products that
have sufficient overlap of characteristics, we have eliminated the products with the lowest profitability and we expect the products that we
retain will generate more profit. A third source of benefits from PLS is less price discounting. As we have implemented operating procedures
under PLS, we have introduced fewer new products and lengthened the life cycle of products in our offering. We expect these operating
procedures will lead to less aggressive price discounting over a product’s life cycle.
In addition to the benefits above, supply chain benefits accounted for some of our estimated benefits. We expect improvements to cost of
sales once PLS is fully implemented, primarily from a reduction in inventory obsolescence expense as a result of better managed inventory
levels, lower variable spending on warehousing, more efficient manufacturing utilization and lower purchasing costs. We also expect
operating expenses to benefit from a reduction in distribution costs and benefits to inventory productivity.
Given the nature of these benefits, we estimate that we realized our targeted total benefits from this program of approximately $40 during
2008, $120 during 2009 and approximately $200 in 2010, or incremental benefits of approximately $80 over 2009.
Strategic Sourcing Initiative
We launched SSI in 2007. We believe this initiative has reduced direct and indirect costs of materials, goods and services. Under this
initiative, we have shifted our purchasing strategy from a local, commodity-oriented approach towards a globally-coordinated effort which
leverages our volumes, allows our suppliers to benefit from economies of scale, utilizes sourcing best practices and processes, and better
matches our suppliers’ capabilities with our needs. Beyond lower costs, our goals from SSI include improving asset management, service for
Representatives and vendor relationships. During 2008, we realized benefits of approximately $135 from SSI. During 2009, we realized
approximately $200 of benefits from SSI, or incremental benefits of approximately $65 over 2008. During 2010, we realized approximately
$300 of benefits from SSI, or incremental benefits of approximately $100 over the benefits realized in 2009.
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