Presentation on theme: "Presented By Production On Demand Production System for the “Made in China” Watch Industry."— Presentation transcript:
Presented By Production On Demand Production System for the “Made in China” Watch Industry
A New Collection 2 Now we have to produce… We have a great concept for a new collection ! But the question is, what do we produce and how much?
Merchandise Planning 5 classics 4 sport 3 trendy 3 designs That’s a total of 15 models…seems ok 3 2 case colors: silver and gold, 2 sizes: Men’s and Ladies 3 movements: 3 hand-date (2 sizes) and a chrono 4 dial colors 2 bracelets and 3 strap colors Looking at the merchandising by styles we have… Wow, my watch line is…3,600 sku’s!!!!! Now, in each style we have That’s a lot…
Well, my supplier is a good partner… he needs only 500 pieces per style, size, movement and color … and the watch is not so expensive … an average of $18.00... Too much, I have to cut to a max of 720 sku’s…total is $6.48 million So How Much Will This Cost? 4 This is crazy!!! I need $19.4 million!!! Now the calculator…
The Need for Flexibility The US market wants silver and gold cases But the German market wants titanium finish and matte colors, But the Spanish market wants 2 tones, South America as well... And the Mexican market wants smaller sizes, But the Chinese market wants Rose Gold, And retailer xyz wants to be exclusive for 3 sku’s, And then there’s duty Free too !!! Etc., etc., etc. 5 I really need to provide more flexibility… This is a nightmare... How much will this cost me?!? It will cost us time to organize…and the initial commitment will be significant How am I going to do this???
1. So what are my financial parameters? I’ll buy 720 total sku’s I expect a net margin of 50% - Mark up 2 (net margin = commercial margin less marketing, co-op, sales commission, trade discount, etc.) My best sellers should turn 3.0 times, My average sellers turn about 1.5 times, My worst seller turn 0.4 times (they do not sell, then we will do extensive trade discounts, eventually RTV, and then ultimately, close-outs). 6 Let’s review my sales projection and my inventory forecast
2.Stepping back, let’s study the availability…and profitability Supply Chain Parameters Supply Chain Consideration Forecasted Financials 7
2.1: Supply Chain Parameters Initial production time is 120 days Plus shipping=say 150 days Replenishment time time is 90 days Plus shipping=say 120 days If I got first delivery in August … In Store – September … we’ll get the initial feedback on sell-though in October … I can place my first re-order in November… impossible for me to do anything before… I would then expect my second delivery on March 15 (90 days) then bring to store, verify it is still a best seller, then place another re-order by May 15 and get delivery by Sept 15… With those parameters, I can barely have 2 deliveries per year, making it difficult to follow fashion and design trends 8
2.2: Supply Chain Consideration For our best sellers, I can only do ONE reorder a year!!! My 3.0 times projected rate can not be sustained by the reality of my current supply chain. It is impossible!!! At best, I will have a best-seller achievement rate of 50%!!! How could I maximize those best sellers? For average sellers, I can assume we will achieve 90% of 1.5 times For the worst seller, I can assume we will achieve a 0.4 time sell-through, and the balance will cost us trade discounts, eventually RTV, and then ultimately, close-outs, etc. 9 Hmmm, that means…
2.3: Forecasted Financials 10 Assumptions Qty Sku Initial order Average costing Purchase Value (Millions)Margin W.S. Value (Millions) Turn/ye ar Target Sales (Millions) S. C adjustem ent Forecast business (Millions) Addl. Invtry. Add Invent. Value (Millions ) Total Inventor y (Millions) Total W.S. (Millions ) Current Net Margin (Millions ) Missed Margin (Millions ) 144500$18.00 $1.32$2.63.0 $7.860% $4.7500 $1.3 $2.6 $4.7 $2.1 $3.1 432500$18.00 $3.92$7.81.5 $11.790% $10.5300 $2.3 $6.2 $10.5 $4.3 $1.1 144500$18.00 $1.32$2.60.4 $1.0100% $1.0300 $- $1.3 $1.0 $(0.3) $- $6.5 $12.9 $20.5$16.2 $3.6$10.1$16.2 $6.1 $4.3
2.3: Forecasted Financials 11 The current “Made in China” supply chain could cost up to $3 Million of net margin. A better supply chain could represent of 49% of the profitability of the collection!!! Current Financial Summary Total Inventory (Millions) Target Sales (Millions) Real Wholesale (Millions) Current Net Margin (Millions) Missed Theoretical Margin Incremental inventory Real Margin increase Best sellers $2.6 $7.8 $4.7 $2.07 $3.1 $1.3 $1.8 Regular $6.2 $11.70 $10.5 $4.3 $1.2 $- $1.2 Worst $1.3 $1.0 $1.04 $(0.3) $- Total $ $10.1 $20.5 $16.2 $6.1 $4.3 $1.3 $3.0 49%
2.4: A Side Parameter… Marketing and Fashion Trends The fashion business is organized around 2 collections a year. The best current retail business model can match this and capitalize on fast changing trend. With current supply chain, it is difficult and nearly impossible to follow the fashion trends – it is just too slow. The Consequences: – Very hard to follow trends and bring them to market on time and replenish in order to maximize inventory investment – Impossible to react to fast changing trends, – Each order runs the financial risk of getting higher levels of obsoletes, – Retailers would then go also for more “marketing” lines, organized to bring uniqueness to the market each time they sell, but will also loose the benefit of building best sellers… If we go from the industry standard of saying that a better line over perform 15%, then we could draft the P&L of an optimized supply chain… 12
2.4: A Side Parameter… Marketing and Fashion Trends (contd) An optimized supply chain would allow: – Initial orders in 90 days, – Re order time in 12 days, – New products adaptations (dial color–hands change–strap color) in 35-40 days, – New MOQ per order (as low as 1 piece) An optimized supply chain would work with: – Components on shelves, – A “Pull” ordering system, – A design interface allowing to create dynamically combinations, BOM and orders, – An on line inventory management with re-orders levels for components and sub components (Blanks mostly), – A design team working with a supply chain team at the factory level 13
2.4: A Side Parameter… Marketing and Fashion Trends (contd) The benefits of an optimized supply chain would be to: – Going back to 3,600 potentials sku’s, – Lower first finish goods orders from 500 pieces / sku to 100 pieces / sku, – Minimize or eliminate the worst seller inventory, – The ability to capitalize the turn of the best sellers volume (at least 80%), – Bring to market new colors or trends in 40 days instead of 6 months – Allow limited editions or exclusivity to be given to key retailers or markets in 45 days at a low cost (Value of 1 or 2 components instead of complete watch, plus shipping and duties), – And lower the needed of multiples inventories as everything could be prepared and ship from the factory to any location in the world. 14
2.3: Forecasted Financials 15 Total Inventory (Millions) Target Sales (Millions) Real Wholesale (Millions) Current Net Margin (Millions) Missed Theoretical Margin Incremental inventory Real Margin increase Best sellers $2.6 $9.15 $5.5 $2.9 $3.7 $1.9 $1.7 Regular $6.2 $13.7 $12.4 $6.1 $7.6 $0.64 $6.9 Worst $1.3 $1.2 $(0.1) $- $(0.1) Total $ $10.1 $24.1 $19.1 $8.9 $11.2 $2.6 $8.6 96% Assumptions with Optimized Merchandising Process The current “Made in China” supply chain could cost up to $8.6 Million of net margin. A better supply chain could represent of 96% of the profitability of the collection!!!
Let’s Dream for a Minute… 16 How can this be my “Perfect Supply Chain”?
A Perfect Supply Chain Would be to: 18 Allows multiple combinations Provide an easy way to create new sku’s within same assortment Deliver any combination within a short period of time Allow small to large orders Reduces cash invested in inventory
Who’s the existing business models already working with such a system Dell computer - picking parts from a centralized inventory Car companies (outside the USA mostly) you go to a dealer, you choose the car and they do it for you in 3 weeks – very little in inventory Food companies, a Centralized components inventory, picking and processing within 48 hours A lot of industries are already using this system… 19
20 So…who can offer this service for my watches?
Here’s An Existing System Live Today… The Disney Create-Your-Own on line store… 21
Lets Have a Look at How it Works… Screen 1: – My product control screen: 22 Each product style can generate many product references and dynamically creates a Bill Of Material (B.O.M)
Screen 2: A live example… http://watchdisney.ewatchfactory.com/eshop/WatchAction.do method= personalize&watch.watchId=400313P 23 Multiple straps Multiple case colors Multiple dials And even personalization… Customers can choose many different combinations of dial art and components
Screen 2: A live example…(contd) 24 That’s 500 Total Combinations for this one item!
Another Example http://watchdisney.ewatchfactory.com/eshopWatchAction.domethod=personalize& watch.watchId=84837 25 This one has 774 Total Combinations!
Here’s the process… Step 1: Selecting Components Optimizing standardization of components between models 26 Our Men’s Sport Alloy collection of cases Our Women’s Fashion Alloy collection of cases
Here’s the process… Step 1: Selecting Components (contd) Optimizing standardization of components between models 27 Our Men’s and Women’s 14mm Rubber Strap collection Our Women’s 12mm Metal bracelet collection
Step 2: Creating a Product Style / Merchandising Presentation 28 From a Product Template, all of my available items per style are shown Here’s my case choices… Here’s my strap choices… Here’s my dial choices… Here’s my hand choices… This template alone will generate 11,520 unique models!…
Step 3: Creating the Inventory Supply Chain Values Creating initial component order quantities and re-order levels: – Finished bracelets/size/color: 300 pcs/200 pcs – Finished case/movement/size/color: 300pcs/200 pcs Etc… Existing Sample Form 29
Step 4: Creating Web Designs and Ordering Systems Adapt our 100% secure proprietary CYO platform which we use with Disney, but modified to include… – Password and login access – Online inventory levels – Online production tracking – Online shipping and tracking info 30
Step 5: Ordering Confirmation Process All orders would be initiated by the dedicated customer team … BUT … the system could be developed to require a second approval from a management team from a control standpoint. 31 CONFIRMED ORDER OK son, we’re good to go!
Step 6: Shipping Process To finalize the process we would need to know: – Do we drop ship from China to a HK forwarder? – Do we drop ship directly to countries or accounts? – Packaging and packing requirements – Invoicing to follow the goods and all coding required per products 32
Step 6: Shipping Process (contd) 33 Here we are using our Disney CYO Program as an example…
Conclusion 34 Your current system, has your cash stuck in the warehouse... So why not try something different?