Safilo Group's 6-Year Journey to Procurement and Supply Chain Transformation
Appealing to all ages and demographics, the global eyewear market is undergoing considerable growth. Set to exceed $165bn by 2026, optical companies and those specialising in eyewear will need to transform traditional business models behind the scenes in order to cater towards increased demands.
From the purchase of designer sunglasses, to the improvement of everyday vision, 99% of all frames worldwide are produced in Italy, China and wider Asia, creating significant opportunities for eyewear creator, Safilo Group.
Famed for its extraordinary designs and propriety brands, such as Carrera and Polaroid, as well as its licensed brands, BOSS, Tommy Hilfiger, Kate Spade, Marc Jacobs and more, the group has become the second largest eyewear company in the world.
Safilo is a frontrunner in the global distribution of premium sunglasses, optical frames and sports eyewear, bringing the latest design and manufacturing capabilities. Housing a number of its factories in Italy, its sourcing activities are mainly undertaken in China and Japan, where its frames are distributed worldwide.
“From a supply chain perspective, we don't have a strong segmentation by region, but more on a functional basis. However, sourcing is much more Asia focused, which is why we have a strong team in Hong Kong,” explains Jorge Gonzalez, Director of Sourcing in Asia and APAC.
“We source a large share of what we sell with partner companies, instead of with our own direct manufacturing. The sourcing team is extremely well recognized, as it is a key source of innovation.
Working across a number of supply chain functions for close to 20 years, Gonzalez joined the business in 2016 taking over from Andrea Grassini who then became Global Sourcing Director. Grassini has been instrumental within the group’s procurement and supply chain transformation, and has taken the business’ procurement and supply chain capabilities to the next level.
“Previously, the interface between design and sourcing was happening much more downstream in the process. Now, the way we work opens up more opportunities,” he explains.
“When you have your own factories, it's much more difficult to keep in touch with the market, so we keep in touch through our network of suppliers.
“Instead of having one location, we have over 30. We don’t manage the production directly, but we operate like a factory, with production managers, scheduling and planning. Instead of production orders we use purchase orders, but it is similar. It’s part of our success.”
Working alongside designers in Italy, New York and China, Gonzalez and his team work in sync with both designers and suppliers, passing on innovative design concepts which can be mass produced, placing particular emphasis on building mutually positive supplier relationships in the process.
“We are like a revolving door, with suppliers on one hand and designers on the other, in order to produce prototypes, concepts and drawings. There is also an engineering team, each housing over 15 years’ experience, which is why our sourcing is world-class,” adds Gonzalez.
“Appointing a number of individuals with a background in manufacturing has also helped our suppliers, as many organisations won't have the manpower or the expertise to go deep into their operations. They just want to negotiate the price and then leave things be. Our differentiator is that we go to their factories and seek to add value by highlighting opportunities for improvement in every factory,” he continues.
“We have the background and the expertise. Manufacturing together with lean and six sigma methodologies was a key turning point.”
Building team resilience
As new materials, textures, colours and finishes, as well as types of lenses, continue to flood the market, Gonzalez and his team have remained adaptable against ongoing market volatility.
With over a thousand new products each year, each member of the team plays a key role: Product development and engineering teams manage all 1000 models from prototyping to mass production readiness; the quality manager ensures that all are manufactured to high standards, whilst the production manager remains responsible for the procurement-to-pay process and delivery performance.
Additionally, one team is strategically working with suppliers and gaining a greater understanding of costings, the bill of materials, and overhead percentages. Its sourcing house has illustrated how a healthy manufacturing company should operate by creating a dedicated area for its purchasing operations and giving its sourcing house greater autonomy.
“I see myself as an enabler and facilitator. Each team is given targets where they make the required choices and are held accountable. They decide which projects they will run with and the activities they believe the business should be undertaking,” explains Gonzalez.
The sourcing house is routinely encouraged to embrace new ways of working, particularly in areas such as how to assign new styles to suppliers and balance capacity, as it continues to transform from regional, isolated, “do-it-all” units, to global, category-focused procurement clusters to address global spend by category while driving accountability for quality and delivery.
“The question is ‘why bother to do better if we are already doing very well?’ Trying to motivate workers in this way was an internal challenge which we had to overcome,” notes Gonzalez.
“We looked at other industries in order to bring some examples to the table. We also brought the team to the factories, to the suppliers, showing real examples of how we can be even better.
“It takes a while to embed this kind of culture of fighting for every single opportunity. The automotive industry had to do it in the '80s and we are having to do it now.”
Presently undergoing its six-year accelerated procurement strategy, which is set to complete in 2020, Safilo will seek to balance its production and sourcing activities, in order to deliver outstanding results in five key areas: availability, delivery, cost, partnerships and innovation.
“With net inflation, we are trying to accomplish around low single digits sourcing efficiency year on year, which with inflation is a high single or even double-digit improvement especially in countries like China,” says Gonzalez.
“That is the driver towards all other choices that are situated in quality and lead time in production. All of this is geared to removing defects and waste, which will help us achieve purchasing efficiency, not by reducing the profit of our partners but by improving the processes.”
Focusing on three main engines: product development, the purchase-to-pay process and supplier and relationship management, Safilo looks at supplier production and scheduling, collaborating with suppliers across the whole manufacturing process.
“Having a manufacturing mindset and experience with lean and six sigma methodology. We do not just negotiate prices, but go deep into our suppliers’ production processes,” he says.
“We look at their situation, their overheads, undertake a profit and loss (P&L) analysis and then give them a hint of where to look for opportunities. Partners are defined in addition to by performance, by the level of collaboration we obtain during these conversations. At the end by natural selection suppliers will end up being dropped and renewed if they are not able or willing to work to continuously improve quality and process and remove waste cost.”
With increased pressures as a result of the exchange rate with the dollar, as well as Chinese inflation, the company’s relationship with its suppliers has been completely disrupted.
“In the past, cost was not so important. Every supplier had the notion that if they do a reasonable job then they will receive a certain amount of business the following year. We have therefore had to bring suppliers back to five KPI areas - compliance, social responsibility, quality, delivery performance, cost, and a ‘softer’ area of whether they are easy to do business with,” explains Gonzalez.
“We have had to become very disciplined in making sure that new business and the growth of the supplier is 100% linked to this.”
Introducing best in class management practices, Safilo works with suppliers to create a yearly joint business plan (JBP), undertaking quarterly reviews, as well as visiting suppliers at their own locations to reach as many layers as possible.
“I personally take the time to meet with the people, with my team and go all the way across the shop floor to understand the issues, work with them and do some problem solving together.
“It is a matter of looking at the performance of that factory in somewhere like China and how it will impact our customers in countries such as Spain or Brazil, highlighting the relationship between market and supply.”
By running a number of quality assurance programmes, the sourcing house has also undertaken a range of projects with suppliers to tackle long-standing issues.
“Each year, KPIs are expanded further to provide new challenges for suppliers, whether it is through capacity or lead times. For example, last year, our KPI in delivery performance is at 95-97%,” notes Gonzalez.
“We have three seasonal collections per year - in January, April and August - and each year we have removed one week off the lead time. Since 2016, we have cut off three weeks in terms of lead time. However, we need to maintain the same quality and service level, as well as reduce costs.
“We need to be faster and remove waste,” he adds. “We cannot do things the same way that we were doing before, so that forces us internally as well as our suppliers to review current processes, not just production but end to end. For example, lengthy and manual interfaces meant that a purchase order would move from office to the supplier in days, now it takes hours,” he continues.
Soon to renew its 2020 vision following on from the appointment of its new CEO this year, Safilo will aim to further transform the business to uphold its 100% track record on delivery.
Adopting lean deployment programmes to reduce lead times and shrink costs with year-on-year positive procurement efficiencies despite various challenges, Safilo’s unique team, deep knowledge of products and exceptional focus on quality has fully transformed the business.
Implementing data-driven, six sigma problem-solving solutions to tackle quality issues, its dedicated team has delivered the best quality, delivery and cost from the start to support its manufacturing partners, as well as putting forth best-in-the-business engineers and materials experts.
“With the ability to automate production processes, we are open to new supply markets – this is one area of focus for us. Looking at Asia, we want to become less China dependent and be more diversified on the supply market,” notes Gonzalez.
The business is also set on embedding greener technologies and processes to fully disrupt the traditional eyewear industry.
“Some of the materials that we use are the same as 50 years ago, like cellulose acetate. Now there are new technologies for cellulose acetate, such as new formulations. There is investment underway on how to remove any solvent based elements, so cleaner processes and the introduction of increased bio-materials will definitely be a trend for the future,” he concludes.
“In sourcing, we will be able to change much faster than any other internal factory because we are able to leverage our suppliers' world class expertise.”