“Made in America” is possible, it just might take 15 years. Beauty and fragrance company Bath & Body Works began reshoring its manufacturing process from Canada, China and Virginia to a consolidated campus in Ohio in 2008 despite challenges like skeptical suppliers. These efforts paid off during the pandemic when competitors struggled with shortages and overseas restrictions — Bath & Body Works’ annual revenue ballooned to $7.56 billion. However, U.S.-based production may be less feasible for companies that deal with highly specialized supply chains that are rooted in foreign countries, the Journal notes.

 

By Ruiqi Chen, Editor at LinkedIn News

A Soap Maker Cracks the Code to ‘Made in America’

Bath & Body Works decided it needed to get new products to market more quickly. The result was a production initiative with little parallel in corporate America.

Now every step of production occurs at plants just feet from each other on the company’s dedicated “beauty park” on the outskirts of Columbus. One factory makes the foaming pump and mechanism. Another makes the bottle itself, a third makes the label, a fourth makes the soap, fills the bottle, attaches the label and screws on the top. A fifth packages it. Getting a bottle to distribution is down to 21 days and a few miles. A majority of Bath & Body Works products, which are sold in its own stores, are made on site.

The effort, which started in 2008, required a lot of negotiation with sometimes skeptical suppliers. The campus includes 10 manufacturers and millions of square feet of production and warehouse spaces, with 5,000 employees working there during peak production. Bath & Body Works had sales of $7.56 billion last year, increasing annual revenue by more than $2 billion since 2019.

“I look at BBW as a composer and a conductor of a symphony,” said Bath & Body Works supply-chain executive Susanna Zhu.

Bringing production closer to home has become a priority for many companies. Disruptions from Covid-19, severe weather, trade wars, geopolitical tensions and stuck ships left consumers without the couches and hot tubs they wanted. The Biden administration is spending hundreds of billions of dollars aimed at boosting the domestic presence of industries deemed strategic, including electric cars, batteries and semiconductors.

The government money, along with roaring consumer demand and persistent supply-chain issues, are leading to a factory building boom, with spending at its highest level in at least 20 years. Over the next decade, public and private investment will amount to $3.5 trillion, the government estimates.

Bath & Body Works’ initiative proved particularly helpful during the pandemic. While competitors struggled with shortages, BBW’s suppliers on location shared raw materials and even employees to make more hand sanitizer and other in-demand goods.

Chief Executive Gina Boswell said locating corporate executives just a short drive away from key manufacturers allows problems to be fixed and new products developed quickly.

“That’s magical, especially when you need speed and agility,” she said.

The company, which like many retailers benefited from increased consumer spending in the pandemic, said sales could fall this year.

One challenge to replicating BBW’s model is that factories don’t operate in bubbles, but rely on networks of suppliers, parts and expertise—and moving those networks is costly. Once such a network has been established, it tends to get stuck there.

Land, labor and compliance with environmental and zoning laws also generally cost more in the U.S. than in China and developing countries.

What works for soap and the two dozen other products BBW makes won’t necessarily translate to smartphones, blenders or even backpacks with highly specialized supply chains deeply rooted in Asia.

Semiconductor manufacturers and raw steel producers require massive upfront investment and economies of scale. The BBW model is better suited to exploiting economies of scope, in which a manufacturer produces a variety of products. Bath & Body Works can roll out around 7,000 new scented products a year.

BBW, whose headquarters is about 10 miles from the beauty park, was founded by Les Wexner as part of his retail conglomerate, L Brands. The body-products seller grew from 27 stores in 1990 to more than 1,000 in 1999 and 1,810 as of April. In 2021 L Brands spun off its Victoria’s Secret lingerie stores and changed its name to Bath & Body Works, focusing exclusively on that brand.

For its beauty campus, the company chose New Albany, a planned community close to a major highway and a day’s drive from nearly half the country’s population.

New Albany wanted to diversify its white-collar economy. To entice BBW, the city created zoning and installed infrastructure at a cost of $6 million to itself and $3 million from the state. The early factories opened on the 450-acre site in 2011.

To make it happen, BBW had to persuade its best suppliers to move. The plus for suppliers was continuing to do business with a fast-growing skin-care seller—with volume guarantees from BBW for a set number of years. The minus: spending millions to relocate production and buy new equipment.

Rieke Packaging, which makes dispensing pumps for soap bottles, didn’t know if it was going to be worth the investment. At the time, Rieke made the pump at factories in China. Rieke had an existing factory a few hours away in Indiana that could potentially supply the park, but Bath & Body Works said it wanted factories on-site.

“From a supplier perspective, there was a lot of resistance,” said Craig Miller, who worked for Rieke at the time and now works in supply chain and manufacturing for a pharmaceutical company. “You want us to buy more equipment. Our lease rate is going to be double what it’s going to be in rural Indiana. Come on, that doesn’t sound any fun.”

Rieke decided to make the several-million dollar investment in New Albany. “It was too big of an opportunity to pass up,” Miller said.

Moving production to Ohio wasn’t easy. Factories had to contend with planning officials, high labor and construction costs and even endangered bats.

Jeff Stouffer worked for Bath & Body Works in new product launches and later joined a supplier that made perfumes and filled bottles, which opened up a new factory at the campus around 2015. He and other executives met with city and business park officials more than a dozen times to discuss the aesthetics of the relatively small factory, negotiating over everything from the color of the walls to the size of the company’s sign. It was like a homeowners’ association on steroids, he said.

“They are very rigid about what it looks like,” he said.

The possible presence of a species of endangered bats prevented the removal of trees on the site, delaying construction for several months.

Still, almost every company has expanded beyond their initial investment.

“It’s going to be a 2- to 3-year heavy lift for a payout in 5 to 10 years from now,” Stouffer said.

Keeping costs down was the biggest challenge.

Not every production step took place in Ohio at first. Rieke initially molded two outer plastic parts in New Albany, which could be made from any number of colors. It would then attach them to the inner core of the pump, which was still made in China.

Around 2020, Bath & Body Works said it really wanted the entire foaming soap pump to be produced in the U.S. BBW also didn’t want to pay more than the approximately 20 to 25 cents per unit it was paying, according to Will Nguyen, an engineer who then worked for Rieke and now works as a consulting engineer.

The two sides negotiated a multiyear supplier agreement to bring pump engine production to the campus from China. For a few months, it wasn’t clear if that would happen, said Nguyen.

Rieke agreed to make the entire pump in Ohio at essentially the same unit cost, and Bath & Body Works helped Rieke get access to volume guarantees and global purchasing and supplier deals with other companies, said Nguyen.

Now Rieke had to figure out how to make the pumps in Ohio—profitably. They turned to automation.

In China, building the 13-part pump was a manual process using lots of workers who handled tiny springs and balls. “We cannot replicate the manual process that was done overseas in central Ohio,” said Mark Box, an executive of TriMas Packaging, the parent of Rieke—but getting machines to replicate that work was complicated. “You’ve got very small parts, moving very quickly. The slightest thing can cause a jam.”

The machines had to make a pump tight enough to keep the liquid inside but not so tight that it won’t operate. The machines also had to deal with differences in plastics and other raw materials from shipment to shipment.

Nguyen estimates that production in the U.S. employs around 10 people and required $12 million in capital investment, versus employing around 50 people with under $2 million in investment for similar production capacity in China.

The automation and proximity means that pumps and their parts can arrive and be fully created in under a month, compared with five months previously. Rieke sells around 300 million pumps to Bath & Body Works a year.

New Albany thinks the beauty campus can be a model for other companies and communities. It has attracted an Amgen pharmaceutical plant. Last year Intel chose New Albany as the site of a $20 billion semiconductor facility. The company said the Intel plant would attract dozens of new local suppliers, including semiconductor equipment makers and other materials providers.

The success of the park, and its thousands of employees during the peak season, means that some of the closely located manufacturers are worried about labor shortages. Bath & Body Works has recently allowed some suppliers to open up factories in other parts of Ohio to attract new workers.

BBW’s strategy today revolves around the unique properties of its beauty park: new products, delivered quickly. Bath & Body Works regularly rolls out fresh aromas and places a premium on fast design and production. This model allows BBW to charge premium prices and avoid discounts and leftovers, and helps cover the added cost of local manufacturing.

The Wild Sand aroma (fragrance notes: prickly pear fruit, cactus flower and warm agave nectar), launched earlier this month, is available as a hand soap, candle, shower gel, perfume, sanitizer spray, body lotion and self tanner.

Unlike most retailers, which preorder all of their products for the season months in advance, Bath & Body Works aims to preorder around two-thirds. It then closely monitors sales and places additional “instant” orders for winning products.

“Within literally a week, that’s what’s getting shipped,” said Nicholas Whitley, chief executive at soap maker and filler KDC/One.

Being co-located means manufacturers can use a campus shipping service to easily send samples to the next stage in the process or to a Bath & Body Works executive for signoff, no overnight shipping required. How something smells, feels or looks in a store is hard to relay over Zoom calls.

“There are glitters, holographics that don’t translate as well,” said Tom DeCicco, a graphics manager at label maker CCL Label. “You can’t get that in the picture.”

By: Austen Hufford, Microsoft Start