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A new way of thinking about the production chain?

INNOVATION

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August 2019


A new way of thinking about the production chain?

How is it possible to achieve a much stronger and instant match between brand orders and assembly capabilities? And doing so, avoid excessive and unsold stock? Some time ago, we visited the facilities of the Montrichard assembly group, which has developed “just-in-time manufacturing” to solve these problems. They have also extended their range to smartwatches.

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o you remember our report about China two years ago? In it, we talked about the Montrichard Group, a watch assembler with facilities in Shenzhen and offices in Hong Kong, New York and Switzerland, which was just then launching a key innovation: a new dedicated watchmaking management software application called FINS (Flexible Industry Solutions), intended to be an alternative to the big standardised software packages used by many brands. Read our report here.

“We want to match supply and demand: better management of cash and inventory through better predictability of orders,” Remi Chabrat, the CEO of Montrichard, told us. “How do you solve the problems of a watch brand in terms of financial flows? You crush stocks! We improve cash flow and we increase sales by following trends to the minute.”

“How do you solve the problems of a watch brand in terms of financial flows? You crush stocks! We improve cash flow and we increase sales by following trends to the minute.”

Remi Chabrat gives a specific example, when one of his clients wanted to cap his watch inventory to eight weeks per reference. “We implemented a solution with a metric for weekly sales consumption. If a brand sells five watches of a particular reference weekly, then the inventory would be 40 pieces to cover eight weeks. The system analyses the inventory position once a week in order to adjust the stocks. This process can be automated or done manually.”

Using this method allows clients to reduce their inventory by up to four to six times, claims Remi Chabrat. “The result is increased free cash flow, and reduced staff and logistic costs.” A new client of Montrichard currently has 6 million dollars’ worth of inventory: “When we start operating their supply chain, we will probably reduce it to 1.2 million dollars in complete watches and 0.6 million components in China,” says the manager.

Another way to reduce brand inventory, as well as by using the new virtual tools, is for brands to send direct orders for specific markets to the assembler; shipping is then undertaken within a couple of weeks. “When they reach this stage, brands may use our state-of-the-art platform to create dedicated assortments per market or per client,” explains Remi Chabrat. “We then usually observe an increase in volumes of sales. The watch business is going increasingly in the direction of smaller customised manufacturing batches, rather than large production runs with years of inventory.”

“The watch business is going increasingly in the direction of smaller customised manufacturing batches, rather than large production runs with years of inventory.”

A new way of thinking about the production chain?

Other industries are already much more advanced from the point of view of digitising and customising manufacturing orders. “For example, you can easily customise your Converse sneakers on a dedicated website, or Zara, H&M or Uniqlo. It’s both very fluid and simple. Today, we are pursuing a model closer to that of Amazon than of a traditional watch supply chain. Everything is coded, scanned and standardised, and each order can be tracked individually online by the customer. This is a system that is constantly being updated with new functionalities and can offer detailed reporting, such as the performance of each model by colour or by country. Customising the assortment allows us to be as close as possible to the market.”

“The goal is to customise the assortment to be as close as possible to the market.”

“Our customers are watch brands that are dealing with year-old sell-out and inventory problems. We ‘blow up’ their component models and track how many cases are available from our suppliers. The goal is to have a faster and more personalised process, and work on a just-in-time basis, with good database and inventory management, just like in the automotive industry.”

The FINS software is based on the availability of components. “Once we finalise the terms and conditions with a new client, our first mission is to optimise their portfolio of components,” explains Remi Chabrat. “The process is the same as that used by the automotive industry. For instance, we might standardise movements, which could allow for interchangeability of cases, straps, sizes and colours. The portfolio of components is suggested by our teams of specialists in the watch supply chain and is calculated based on a set of measures that include the track record of past sales, forecasted sales, and what ‘inventory exposure’ each brand is prepared to have.”

“After we finalise the terms and conditions with a new client, our first mission is to optimise their portfolio of components.”

“Once this first analysis completed, we get the components from our own supply chain and bring them into one of our warehouses, then set up the software and we’re ready to go! It may seem simple, explained like this, but you must be aware that our system can recalculate up to 100,000 pieces of data per minute, to control or adjust the inventory rotation by component, according to the forecasted delivery by suppliers and other criteria.”

Remi Chabrat stresses how drastically the watch industry has changed over the past decade: “Today the winning brands are the ones who have been able to build a sense of uniqueness into their ranges and really match supply with demand. A traditional business model that relies on 90 to 120 days for delivery is no longer viable, or else it requires a huge amount of inventory. And there’s the risk that the timepieces will not sell well, which triggers a need for a lot of additional cash flow to compensate. Some listed watch companies have an inventory turnover 6 to 10 times slower than listed fashion brands.”

“A traditional business model that relies on 90 to 120 days for the delivery is no longer viable, or else it needs a huge amount of inventory.”

The first historical customer of Montrichard’s FINS system was Disney. Montrichard also has a partnership with the American giant Timex for the implementation of the FINS software, with the aim of drastically accelerating their time-to-market. “The goal is to change the dynamics of an inventory-based sales process to a demand-driven model,” says Tobias Reiss-Schmidt, President & CEO of Timex Group.

A new way of thinking about the production chain?

The key of the system is to have a very precise vision of the number of components in stock, in order to match customer demand. What’s the advantage for the watch brands? “We aim to make them pay for the watch only when it has already been sold, which is a big difference that responds to the challenge of cash and inventory.”

One of the group’s latest ventures has been into the world of smartwatches, as a growing number of watch brands look into developing their own connected versions. Montrichard Group has created a department solely dedicated to the development of smart technology.

“The success of watch brands tomorrow will be decided by their ability to embrace lean merchandising and micro-merchandising,” states Remi Chabrat. “This is even more the case with smartwatches, a category whose obsolescence is decided by mobile phone operating systems and microchip technologies.”

Read more about FINS technology here.

And don’t miss our upcoming September issue: two years after our latest Chinese report, we are back to investigate this fast-moving market!