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Production On Demand

Production System for the “Made in China”

Watch Industry

A New Collection

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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

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• 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 watchline is…3,600

sku’s!!!!! Now, in each

style we haveThat’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?

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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.

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I really needto 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).

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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

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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

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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 sustainedby the reality of my current supply chain. It is impossible!!!

• At best, I will have a best-seller achievement rateof 50%!!! How could I maximize those best sellers?

• For average sellers, I can assume we will achieve90% 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.

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Hmmm, that means…

2.3: Forecasted Financials

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Assumptions

Qty SkuInitial order

Average costing

Purchase Value

(Millions) Margin

W.S. Value

(Millions)Turn/year

Target Sales

(Millions)

S. C adjustem

ent

Forecast business(Millions)

Addl. Invtry

.

Add Invent. Value

(Millions)

Total Inventory(Millions)

Total W.S.

(Millions)

Current Net

Margin(Millions

)

Missed Margin

(Millions)

144 500 $18.00 $1.3 2 $2.6 3.0 $7.8 60% $4.7 500 $1.3 $2.6 $4.7 $2.1 $3.1

432 500 $18.00 $3.9 2 $7.8 1.5 $11.7 90% $10.5 300 $2.3 $6.2 $10.5 $4.3 $1.1

144 500 $18.00 $1.3 2 $2.6 0.4 $1.0 100% $1.0 300 $- $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

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•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

MarginIncremental 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…

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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 

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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. 

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2.3: Forecasted Financials

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Total Inventory(Millions)

Target Sales (Millions)

Real Wholesale(Millions)

Current Net Margin

(Millions)

Missed Theoretical

MarginIncremental 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 $1.2 $(0.1) $(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…

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How can this be my “Perfect

Supply Chain”?

Supply Chain Synopsis

A Perfect Supply Chain Would be to:

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Allows multiple combinations

Provide an easyway to create new

sku’s within same

assortment

Deliver any combination

within a shortperiod 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…

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So…who canoffer this servicefor my watches?

Here’s An Existing System Live Today…

• The Disney Create-Your-Own on line store…

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Lets Have a Look at How it Works…

• Screen 1:

–My product control screen:

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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

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• Multiple straps• Multiple case colors• Multiple dials• And even

personalization…

Customers canchoose many different combinations of dial art and components

Screen 2: A live example…(contd)

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That’s 500 Total Combinations for

this one item!

Another Example• http://watchdisney.ewatchfactory.com/eshopWatchAction.domethod=personalize&

watch.watchId=84837

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This one has 774 Total

Combinations!

Here’s the process…Step 1: Selecting Components

• Optimizing standardization of components between models

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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

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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

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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

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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

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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.

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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

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Step 6: Shipping Process (contd)

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Here we areusing our Disney CYO Program as

an example…

Conclusion

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Your current system, has your cash stuck in the

warehouse...

So why not try something different?