Pandora Planning Capacity Expansion
Pandora is the world’s largest jewelry manufacturer by production volume and operates in over 100 countries around the globe. There are over 2,400 Pandora stores around the globe with 376 new stores in 2017 and Pandora products are carried at over 7,800 points of sale. Pandora produces more than 120,000,000 pieces of jewelry products every year which are spread across over 1,500 different designs which change every season.
It is clear from the above statistics that Pandora is a successful company which sells a high volume of products to markets all around the globe. However, recent market analysis by Pandora suggests demand for their products is projected to increase beyond their current capacity, and this growth in consumer demand can only be captured by growing production capacity as well.
To increase production capabilities Pandora is consulting with “Quintig”, a global leader in supply chain planning and optimization. Quintig will be using an advanced planning system to support Pandora’s capacity expansion program in Thailand. Over 95% of Pandoras jewelry is produced in its 3 crafting facilities in Thailand which make operations in this region essential to Pandora’s total production capacity. Quintig utilizes a supply chain planning software which optimizes the use of production equipment and human resources, insuring that manufacturing has the necessary equipment and human resources has the necessary training to meet capacity expansion goals. Using Quintig software Pandora hopes to double its production capacity by the end of 2019 to meet rising consumer demand.
Because Pandora has been lagging behind consumer demand in their decision to expand, they have practiced a conservative “Wait-and-see strategy”. Pandora’s decision to renovate existing facilities and finance further renovations around existing factories will align with their competitive priorities and likely allow them to successfully capture more demand and increase revenues by their end goal in 2019. This project aims to improve the costs and times associated with making Pandora jewelry, but also maintains quality and emphasizes improving resource flexibility.
By increasing production capacity the capacity cushion decreases. The capacity cushion is reserve capacity which has been withheld for increased demand in case it should occur, and it serves to protect the firm from uncertainty. Pandora seems to currently have a large capacity cushion because it is confident in its ability to meet a higher consumer demand by increasing utilization of current resources. By supplementing this increased utilization with additional financing, they will be able to meet their goals of doubling sales with an incremental expansion Pandora and Quintig have organized a promising plan for long term capacity expansion that will allow them to continue their yearly growth as a company and meet consumer demand.
Is Pandora aggressively planning capacity by aiming to double production goals by 2019? Is this an overdue change due to the existence of consumer demand? It is an impressive goal to set for Pandora which seems like it may just be achievable.
https://www.businesswire.com/news/home/20180301005638/en/PANDORA-Partners-Quintiq-Implementation-Production-Planning-Solution
After studying abroad this past semester in Milan, I had the opportunity to learn a lot about the jewelry industry. There is a great level of segmentation in the market from a variety of brands, both exclusively jewelers and clothing brands. There are also huge brands that have been around for centuries, such as DeBeers, who have a significant hold on the pricing of jewelry within the international market. Along with this, there are a slew of ethical issues jewelry companies face when managing their supply chain since many of the products they sell are mined from third world countries where the prevalence of abuse and corruption is rampant. In this case, managing a efficient supply chain is highly dependent on communication as well as sound ethical decision from management about how they source their materials and the third parties they work with. One of the other supply chain issues that exists within the diamond trade specifically is regarding pricing inflation. The Debeers company is said to have an exorbitant amount of diamonds held in reserve. They have so many they can take a significant amount of the global supply out of the market to keep the price of diamonds high. This type of significant capacity cushion could significantly help the company in a time of downturn in the supply of diamonds and could also be used to reduce the price of diamonds significantly by underpricing them and flooding the market with a new supply.
https://amp.businessinsider.com/images/54f618c66bb3f77715d23755-750-583.jpg
Above is an example of the breakdown of brands within the jewelry insustry. The variance of supply channels and processes within each one of these five pyramid designations is very different. It is interesting to hear that Pandora is adopting more of a “pull method” of production, which is different from the strategy of many other companies within the “fashion” segment. The pull method is much more common in the very high jewelry categories where the production is much smaller and more craft, while being exponentially more expensive.
Matthew,
In your article you mentioned how Pandora decided to adopt Quintiq as their new software for supply chain management and planning. Since I had never heard about it, I decided to head out to their website and see what they were all about. In their website a found out that not only Pandora is their famous customer, but that they have a lot of multinational brands using their software. Going from Danone to DHL and KLM a lot of companies chose Quintiq to organize their supply chain. This shows how important supply chain is for every company. Without organized services and processes no company would be successful.
Going on from this, I found it surprising how Pandora adopted a “wait and see” strategy. With their success and their popularity, it seems very conservative for such a big brand to take this strategy. I would have assumed they took a leading demand with incremental expansion strategy so that their capacity cushion would not decrease and they would be able to supply to their increasing demand without any issues.
http://www.quintiq.com/customers.html
Matt,
Your insights on Pandora are very interesting. Specifically, your discussion of Pandora’s capacity cushion reiterates the importance for companies to have this built into their capacity. If Pandora did not have a sufficient capacity cushion, then they might not have been prepared to increase production capabilities and consult with outside support, Quintig. Because Pandora was prepared to expand capacity, production, and involve outside parties to help them so do, I think that Pandora’s impressive goal is achievable when considering the steps they are taking to do so.
I think their aim to double production goals by 2019 is ambitious but seems feasible because of their partnership with Quintig. In Thailand, where the vast majority of their products are created, they plan to implement three significant strategies in order to support the increasing demand for Pandora products within the global market. Thailand is a major hub for Pandora, it is also a central location in the Asia Pacific, wherein Pandora’s revenue has been the fastest-growing. First, they are planning to open a new production facility in Lamphun, Thailand in order to manufacture more products to match demand. Next, they plan on implementing a new Triple A crafting facility in Bangkok. Lastly, they plan to reconstruct their existing facilities in Bangkok to streamline processes and increase production levels. Because Pandora is taking these major steps in Thailand, as well as many other steps, I think Pandora will be able to double, or almost double, their production capacity.
https://dancham.or.th/5780-2/
Matt,
Thank you for your insight on Pandora. The article I posted below talks about how Pandora’s jewelry is a fad, and not just a style. The company took off immediately since its beginning and seen rapid growth from the very start. Because of their ability to see continued growth with no real signs of slowing, it is not surprising that Pandora is investing in expanding their operations. I do not see their move as aggressive. They are not even building past their current three facilities in Thailand, they are merely renovating the facilities and hiring the Supply Chain consulting firm.
It will be interesting to see how their wait and move strategy, and current expansion will pay off for them. In class we have discussed the risk of your marketing and research teams being correct in their predictions, and how supply chain managers must use their advice to reach their operations strategy. This is a great example of that.
Source: http://business.financialpost.com/entrepreneur/franchise-focus/how-pandora-jewellery-grew-to-become-a-mega-global-brand
Matt,
This is an interesting topic. I am surprised that such a popular and fast-growing brand is demonstrating the conservative “wait-and-see” strategy. Expanding their capacity is also a move that helps determine their place in the market, from a brand positioning perspective. If they want to continue to grow capacity to meet demand, they are employing a more undifferentiated strategy (less exclusive). This is a smart move as entering the higher-end, more exclusive jewelry market is likely a tough challenge because there are so many players in that category.
Matt,
I had no idea that Pandora was such a powerhouse in the jewelry industry. I recently did a case on DeBeers in my International Marketing class, and I think it is cool to look at some of the operational difference between two companies in a similar industry.
The most obvious difference between the two firms is that Debeers is significantly more vertically integrated than Pandora. DeBeers mines raw diamonds, cuts and polishes the stones, and sells them to the end consumer (https://www.slideshare.net/friscalistya/de-beers-and-diamond-industry). This is obviously different from Pandora’s operations/supply chain that purchases stones and other raw materials from suppliers, produces them in-house, and operates over 2,400 Pandora branded stores. Pandora, is more of a traditional retail operation than the vertically-integrated DeBeers.
Another interesting difference between the two firms is the geographic distribution of upstream supply operations. DeBeers mines diamonds in Canada as well as through multiple joint-ventures in sub-Saharan African countries. the following map shows DeBeer’s mining locations: http://www.debeersgroup.com/en/explore-de-beers/where-we-operate.html. This geographic diversity helps insulate DeBeers from uncontrollable events (political strife, natural disasters) that might occur in a single nation. One of the most surprising bits of information from your post was that 95% of Pandora’s production occurs in Thailand. A capacity cushion is helpful for firms dealing with unanticipated surges in demand, but it also exists to provide stability in the event that machines break, or production facilities go down temporarily. Pandora’s lack of geographic diversity strikes me as a potential operational risk if Thailand were to experience an event such as a serious storm that shut down Pandora’s production facilities. This operational risk could be mitigated if Pandora were to open production facilities in new markets.
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