Slide 1

Presented By Production On Demand Production System for the Made in China Watch Industry Slide 2 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? Slide 3 Merchandise Planning 5 classics 4 sport 3 trendy 3 designs Thats a total of 15 modelsseems ok 3 2 case colors: silver and gold, 2 sizes: Mens 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 is3,600 skus!!!!! Now, in each style we have Thats a lot Slide 4 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 skustotal is $6.48 million So How Much Will This Cost? 4 This is crazy!!! I need $19.4 million!!! Now the calculator Slide 5 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 skus, And then theres 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 organizeand the initial commitment will be significant How am I going to do this??? Slide 6 1. So what are my financial parameters? Ill buy 720 total skus 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 Lets review my sales projection and my inventory forecast Slide 7 2.Stepping back, lets study the availabilityand profitability Supply Chain Parameters Supply Chain Consideration Forecasted Financials 7 Slide 8 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 well 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 Slide 9 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 Slide 10 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 Slide 11 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% Slide 12 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 Slide 13 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 colorhands changestrap 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 Slide 14 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 skus, 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 Slide 15 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!!! Slide 16 Lets Dream for a Minute 16 How can this be my Perfect Supply Chain? Slide 17 Supply Chain Synopsis Slide 18 A Perfect Supply Chain Would be to: 18 Allows multiple combinations Provide an easy way to create new skus within same assortment Deliver any combination within a short period of time Allow small to large orders Reduces cash invested in inventory Slide 19 Whos 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 Slide 20 20 Sowho can offer this service for my watches? Slide 21 Heres An Existing System Live Today The Disney Create-Your-Own on line store 21 Slide 22 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) Slide 23 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 Slide 24 Screen 2: A live example(contd) 24 Thats 500 Total Combinations for this one item! Slide 25 Another Example http://watchdisney.ewatchfactory.com/eshopWatchAction.domethod=personalize& watch.watchId=84837 25 This one has 774 Total Combinations! Slide 26 Heres the process Step 1: Selecting Components Optimizing standardization of components between models 26 Our Mens Sport Alloy collection of cases Our Womens Fashion Alloy collection of cases Slide 27 Heres the process Step 1: Selecting Components (contd) Optimizing standardization of components between models 27 Our Mens and Womens 14mm Rubber Strap collection Our Womens 12mm Metal bracelet collection Slide 28 Step 2: Creating a Product Style / Merchandising Presentation 28 From a Product Template, all of my available items per style are shown Heres my case choices Heres my strap choices Heres my dial choices Heres my hand choices This template alone will generate 11,520 unique models! Slide 29 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 Slide 30 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 Slide 31 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, were good to go! Slide 32 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 Slide 33 Step 6: Shipping Process (contd) 33 Here we are using our Disney CYO Program as an example Slide 34 Conclusion 34 Your current system, has your cash stuck in the warehouse... So why not try something different?