Quantitative Analysis Framework for Strategic Risks of Private Brands in Beauty Product Agency Operation Enterprises

Based on the information I have collected, here is a professional quantitative analysis framework for the strategic risks of private brands in beauty product agency operation enterprises:

The recent ‘Sudan Red’ incident has indeed attracted widespread attention in the beauty industry. According to reports from authoritative media such as Xinhuanet [1], the third-party testing agency ‘Daddy Lab’ detected the prohibited ingredient Sudan Red IV in multiple cosmetics, involving brands such as Kiehl’s, Florasis, farmacy, Kicho, Qiyou, Tinglei, and Yurongchu [1]. Relevant brand parties have responded, emphasizing that their products comply with national laws and regulations, and have urgently arranged product testing [1].

Sudan Red IV was globally banned for use in cosmetics as early as 2003; it is a chemical dye with genotoxicity and potential carcinogenic risks [1]. The current testing standard is mainly GB/T 29663-2013 ‘Determination of Sudan Red I, II, III, IV in Cosmetics by High Performance Liquid Chromatography’ [1].

• Supplier Compliance Risk
  : Evaluate the frequency of raw material supplier qualification review and the coverage rate of quality management system certification
  • Recommended indicator: Supplier audit coverage rate 100%, annual audit frequency ≥2 times
• Testing Capability Risk
  : Self-built testing capability vs. third-party testing dependency
  • Recommended indicator: Key raw material self-test rate ≥80%, third-party testing agency qualification certification rate 100%

• Traceability Capability
  : Evaluate the traceability of raw material sources
  • Recommended indicator: Key raw material traceability coverage rate 100%, batch traceability response time ≤24 hours
• Supplier Concentration
  : Dependency on a single supplier
  • Recommended indicator: Procurement proportion from a single supplier ≤30%

• Public Opinion Response Capability
  : Crisis PR response time
  • Recommended indicator: Negative public opinion response time ≤4 hours, first statement release ≤24 hours
• Consumer Trust Recovery Cycle
  : Sales recovery time after an accident
  • Benchmark: It takes an average of 6-12 months for sales to recover to pre-accident levels after a major incident

• Recall Cost
  : Potential product recall scale and cost
  • Formula: Recall Cost = Recall Product Value × Recall Ratio × Unit Processing Cost
• Litigation Risk
  : Consumer litigation and compensation costs
  • Recommended indicator: Product liability insurance coverage ≥5% of annual sales

:

Comprehensive Risk Index = Σ (Risk Dimension Weight × Risk Score)

Where:
- Product Quality Risk Weight: 30%
- Supply Chain Risk Weight: 25%
- Brand Reputation Risk Weight: 25%
- Financial Risk Weight: 20%

Each Risk Dimension Score: 1-10 points (10 = highest risk)

:

• Low Risk
  (Comprehensive Index <4.0): Sound quality management system
• Medium Risk
  (Comprehensive Index 4.0-6.0): Need to strengthen control over specific links
• High Risk
  (Comprehensive Index 6.0-8.0): Need to take immediate risk reduction measures
• Extremely High Risk
  (Comprehensive Index >8.0): Recommend suspending business expansion

• Establish a supplier classification management system and implement a “blacklist” system
• Implement a raw material batch testing system and focus on monitoring high-risk raw materials
• Introduce third-party audit institutions for annual compliance reviews

• Self-build or cooperate to build professional testing laboratories
• Establish a dual-check mechanism for raw material incoming testing and finished product outgoing testing
• Adopt advanced testing technologies such as non-targeted screening to deal with new risk substances

• Establish a hierarchical response mechanism and standardized crisis handling process
• Reserve special crisis response funds (recommended: 1-2% of annual sales)
• Establish a normalized communication mechanism with regulatory authorities

• Purchase product liability insurance to cover potential compensation risks
• Consider business interruption insurance to cover operational interruption losses after an accident

According to industry practice experience, the reference occurrence probabilities of major risk events for beauty product agency operation enterprises engaging in private brand business are:

• Product Quality Accident
  : Annual occurrence probability 5-15%
• Supply Chain Interruption
  : Annual occurrence probability 10-20%
• Brand Reputation Crisis
  : Annual occurrence probability 3-8%
• Regulatory Penalty Event
  : Annual occurrence probability 2-5%

It is recommended that enterprises regularly conduct risk assessments and stress tests based on the above risk quantitative framework to ensure that risk exposure is within an acceptable range.

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[1] Xinhuanet - Cosmetics detected with prohibited ingredient Sudan Red? Multiple brands respond (http://www.news.cn/fashion/20251027/143fe45f83b8477ea8f342e246447498/c.html)
[2] Guangming Net - How the truth about Sudan Red suspected in multiple cosmetics cannot stop at brand self-certification (https://health.gmw.cn/2025-10/29/content_38376058.htm)
[3] CIRS Group - “Sudan Red” incident, confirmed! (https://www.cirs-group.com/cn/cosmetics/su-dan-hong-shi-jian-shi-chui-le)