MANUFACTURING
Healthy demand for eyewear in international markets in 2007 led the Group to maintain its policy of operating two production centers. Italy and China are the two countries in which Luxottica Group’s production facilities are concentrated.
Having its origins in northeast Italy, the world’s largest center for eyewear manufacturing, Luxottica Group has produced prescription frames and sunglasses for over 40 years, controlling every phase of the production process, from raw materials procurement to manufacturing of finished frames. Its manufacturing process is the product of decades of careful honing, along a path of constant research and development. The drive to achieve maximum efficiency and improve quality was kept up throughout 2007.
In 2007, investments in manufacturing, from materials and machinery to design and programming, totaled Euro 70 million approximately, reflecting the Group’s purpose to keep its manufacturing platform one of the most efficient, flexible and creative in the industry.
In 2007, the Group focused on the following priorities:
- increasing industrial output;
- re-organization and rationalization of manufacturing;
- R&D;
- reduction of procurement costs;
- quality; and
- anti-counterfeiting.
INCREASING INDUSTRIAL OUTPUT
Growing demand in 2007 led the Group to step up last year’s already high levels of capacity. The Italian plants turned out 1.25 million pieces more than in 2006. This increase in production entailed the hiring of around 1,120 people directly by Luxottica S.r.l.
At the same time, extensions were made to facilities at Agordo and Rovereto (not completed yet), new production lines were installed and the new paint shop at Pederobba was enlarged.
The Italian plants continued to focus on luxury brands and premium products in general, leaving the Group’s Chinese facilities to produce other brands.
Increasing output also involved the ongoing process of renewing the entire system of supply forecasting and production planning and monitoring. Programming at Agordo was converted to weekly (as already the case at Pederobba and Sedico), as this can drastically reduce forecasting errors and thereby lowers warehouse obsolescence rates.
Output was also increased as a result of a reduction in lost working hours, partly due to the numerous initiatives to raise awareness of the problem of absenteeism amongst employees.
Events were also organized in a number of plants for employees’ families, with very positive reactions from the trade unions.
Despite these efforts, the Group still needed to take on temporary labor to cover production peaks in 2007. An agreement with the trade unions also made it possible to introduce “flexible days” in order to scale working days to actual production requirements (agreement dated December 22, 2006 renewing Luxottica’s supplementary contract until 2009).
Flexibility, group and individual overtime, shift work and result-oriented bonuses are the main features of Luxottica’s new supplementary contract, which aims to achieve greater efficiency in the use of plant while respecting people’s personal and family needs.
All this makes it possible to ensure a rapid response to fluctuations in the market and improve pay and conditions for employees. Luxottica’s supplementary agreement also dealt with important new themes such as supplementary insurance, the labor market and training, which will improve conditions for employees over the duration of the new contract.
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 nonvalue 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.
R&D ACTIVITIES
Alongside Quality, Research & Development is another key activity for improving response to market demands, especially in the premium and luxury segments. Work proceeded on a number of projects in this area in 2007.
The development and renewal of the entire system of requirements forecasting, production planning and production progress monitoring brings about a substantial reduction in the time elapsing between arrival of an order and delivery of the product to the store.
To improve its response to an increasingly dynamic market that tends to shorten the average life cycle of models, the Group in 2007 focused on coordination between the engineering and product departments, the samples factory and the Italian and Chinese manufacturing facilities.
Thanks to these activities, the Group has improved its capacity to plan new collection launches. The product department has precise knowledge of the engineering department’s capacity to make new models for a given season and can more effectively coordinate its selection and launching of new collections, also with external stylists and using either internal production or external sourcing.
In recent years, modelling has showed an increasing preference for plastic temples, even in metal models. As a result, plastic temples have gradually become more elaborate, with metal or microforged decorations, rhinestone and other increasingly diverse and sophisticated materials (motherof- pearl, straw, leather, etc.). In some cases the temple is the richest and most expensive part of the model, becoming a sort of “product within the product”. This has led the Group to more and more external sourcing of temples, in terms of both manufacturing and ornamentation.
Research & development of both processes and materials continued throughout the year. A group of engineers was formed to work exclusively on research and a series of projects were launched in collaboration with major Italian universities.
On the process front, research focused mainly on the automation of certain key phases in production and on identifying machinery employing new technology capable of delivering improved quality, process consistency and reduction of material losses; for example, new molds for lens production at Lauriano, new pantographs for acetate production at Sedico, robot systems to apply rhinestones, new lasers for cut-outs and brushing, new digital prints for logo application, etc.
Materials research activities continued along the following lines:
- improvement of quality in general to reduce production waste;
- application of nano-technology in surface finishing processes for metals and polymers to solve problems such as the degradability (“stratification”) of injection molded plastic;
- use of nano-technology (MIM and micro-forging) in processes that enrich materials and improve mechanical and aesthetic product characteristics.
QUALITY
Product quality has always been Luxottica’s main focus and has led to the integration of every phase of production. Quality is the critical factor in the premium and luxury segments for both wholesale customers and end consumers. Quality and process control teams regularly inspect semi-finished products during the various phases of production: verifying the feasibility of a prototype in the design phase, controlling standards across the spectrum of products during the production phase, and subsequently checking for resistance to wear and tear and reviewing optical properties in relation to type of use.
The manufacturing processes and materials used by primary suppliers are also controlled and certified. Thanks to ongoing verification of precision and expertise in all phases of production, the quality of the Group’s end product is always of the highest level. The effectiveness of this quality system is reflected by both the relationship of trust that the Group enjoys with independent optical store operators, both large and small, and the low levels of returns.
ANTI-COUNTERFEITING POLICY
Luxottica Group believes that the most effective strategy to counter the widespread phenomenon of counterfeit goods is to attack it at the source. Luxottica has therefore decided to limit action against retailers of counterfeit eyewear and concentrate its efforts on identifying the main flows of fraudulent goods and to organize brand protection strategies accordingly.
In 2007, brand protection activities were stepped up, leading to the destruction of over a million pairs of counterfeit eyewear seized on the international market. This significant result was due to the consolidation of programs initiated in previous years and which were already providing excellent results. Two sorts of cooperation are involved, one with the world’s main Customs authorities and the other with a number of investigation agencies in the countries where counterfeiting is particularly rife in terms of both production and large scale marketing.
Brands being one of its most important assets, Luxottica Group is inevitably committed to maintaining, indeed strengthening, its anti-counterfeiting operations.
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