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This excerpt taken from the LUX 6-K filed Jun 4, 2008. RE-ORGANIZATION, RATIONALIZATION OF PRODUCTION AND VERTICAL INTEGRATION
Over the decades, Luxottica has vertically integrated all the phases of the industrial process, from product design to delivery to the wholesale or retail client.
Control of the various phases of production makes it possible to monitor the quality of products and processes, introduce new operating methods and exploit synergies. It also enables production time and costs to be kept under control and optimized. This has worked in step with direct control of its wholesale and retail distribution networks, which enabled the Group to become a world leader in this industry.
To meet the urgent need for reduced production times resulting in greater efficiency, and to lower purchases costs of lenses and cases, the Group continued to upgrade its buyer structure in Italy and at Luxottica Tristar Optical, its wholly owned Chinese subsidiary.
2007 saw the completion of the Matrix Project, focused on systematic measurement of standard production times for the purpose of monitoring and comparing efficiency (time and space) and calculate standard costs with absolute reliability. Such activities help improve planning capability regarding new collection launches. The production office in particular will be able to know with greater precision the engineering department’s capacity to produce new models for a given season and can thus more effectively coordinate its study, selection and launching of new collections, using either internal production or external sourcing.
To increase the speed of communication between Italy and China, integrating IT systems was made a priority, especially in the product development engineering area.
The objectives of theses initiative were to (i) tighten control of delivery times and quality of external suppliers of both raw materials and finished products; (ii) develop procedures for selection of new suppliers as alternatives to existing ones; (iii) create and manage a database of suppliers’ potential output (suppliers of single types of product) in order to handle growing requirements from the plants in a more structured manner and more rapidly; and (iv) implement systematic medium-term forecasting for every single supplier, so that suppliers can plan their output to meet the Group’s requirements.
Comparative analysis of suppliers and ongoing “make or buy” assessments were made to establish optimum purchase prices for finished and semi-finished goods and on the basis of this it was decided to terminate business with certain suppliers and form partnerships with the best ones, involving them in the whole process, from creation to engineering of models; or produce in house to increase manufacturing efficiency and cost effectiveness.
Rationalization of manufacturing activities proceeded with a full review of production flows, passing from work center manufacturing to production line manufacturing. Initiated in 2006 with finishing work, this process was then applied experimentally to other departments (metal pressing, welding and pre-assembly) at Agordo and Rovereto. Given the excellent results, the process will also be extended to Sedico and Pederobba in 2008.
Of particular importance in this context is the “G6G” (rough frames in 6 days) project, which aims to cut the average production time for rough frames from 12 to six days. This halving of the lead time makes response to market demand considerably faster, with obvious benefits for sales and customer service.
The re-organization of processes also involves a radical reduction of production layout surface area and a full remapping of work areas and work organization.
Plant workforces were upgraded by taking on young engineers to provide industrial control, study of improvements to layouts and production flows, improved coordination of production progress and, lastly, the study of new process automation systems.
Efforts continued in all the plants to implement investments in production lines to eliminate non-value added activities, cut production times and upgrade personnel by requalifying their work. This will also significantly reduce semi-finished product and warehouse stock levels.
In addition to having efficient plants, the Group utilizes a centralized system for monitoring inventory and orders. Daily analysis of this information, especially from its retail business, provides data to support projections of demand, making it possible to plan production and other necessary tasks in advance. The coordination of supply and demand reduces potential problems in inventory and raw materials sourcing. This is a major competitive advantage.
The logistics project based on the Knapp automated warehouse and shipment system, which was handling 40% of the inventory by the end of 2006, was fully implemented in 2007.
Coordinating fast, efficient production in the manufacturing plants with precise monitoring of the market puts Luxottica Group in the best possible position to meet its wholesale customers’ demands and adapt to changing trends in the market and in fashion in terms of both type and quantity of products.
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