Eye Supply

As one of the world’s largest sunglass manufacturers, Luxottica, dominates the eyewear market with few major competitors. Headquartered in Milan Italy, the company was started in 1961, but over the past 20 years has been key to transforming the entire industry to eyewear. Currently, Luxottica has more than 45 brands under its control, manufactures and sells its products in more than 130 countries and has net sales of more than $12 billion.

It wasn’t long ago when wearing glasses was looked down upon and one would only do so if they absolutely needed to. Now, close to 100 million pairs of glasses are sold per year. A few of the major catalysts to this growth have been: continuous growth of premium and luxury segments, massive entry of designer fashion brands, transition from function to fashion, and eyewears implication as a key strategic lever for luxury brands. Luxottica has positioned itself to capitalize on these changing trends in a variety of ways. Their vertical integration of design, manufacturing, distribution, sales, and retail keeps their hand in every part of the market. In addition to the brands they control end-to-end such as Ray-Ban, Oakley, and Perosol, Luxottica also has exclusive licenses to produce eyewear for dozens of other high-end luxury brands like: Burberry, Armani, Bvlgari, Dolce & Gabbana, Polo, Prada, Tiffany, Tory Burch, and many more. For some of these brands, Luxottica even owns the rights to design so brands will send their seasonal collection, and Luxottica’s team of designers will create and manufacture a product that fits within their client’s upcoming line. Luxottica also owns the two largest international eyewear retailers for both sunglasses and prescription eyewear, Sunglass Hut and Lenscrafters. Overall, this has helped them diversify their operations while having multiple different supply channels for production.

Each year, Luxottica produces more than 90 million pairs of glasses in more than 2000 designs. Production in Italy, and China and India each account for approximately 43% of global production while the US accounts for approximately 10% and Brazil 4%. With such large-scale production, Luxottica has managed their supply chain with great efficiency and competence. Their order processing system is highly automated with computer generated stock reallocation based on the demand in local markets. One of the choices Luxottica has made is to use the 3PL system (third party logistics). They claim this gives them the ability to focus more on core business and manufacturing so their role in the business cycle ends with warehouse operations when they make direct sales. Another aspect of their inventory management system that been key to their continued success is the implementation of STARS (superior turn automatic replenishment system) to their wholesale division. The system establishes effective partnerships with wholesale customers optimizing product choice management, supply planning and automatic assortment in stores.

Recently, Luxottica has recognized some areas for improvement within their business model. Lack of client service policy, excess user intervention in the planning process, and the same treatment for all products with to attempt to optimize product mix, were all challenges management sought to tackle. They chose to implement a tool to strategically analyze and optimize stock levels with s system called Service Optimizer 99+ in order to better position inventory, allow production to quickly adjust to market changes, reduce inventories and global logistics costs, and improve forecast accuracy. Optimizer 99+ is also able to manage all finished products in the distribution network across all sites to address many of the issues Luxottica was facing. The total result of this implementation was reducing stock levels by 10% while also reducing the need for manual intervention by 50% while progressively increasing service levels. Because of this success in the finished products implementation phase, the service was further applied to the companies spare parts operation and in less than three months from the start of their project, the service level had reached 98.5% and significantly reduced backorder levels without a simultaneous increase in inventory levels.

While being a powerhouse within their own industry, Luxottica makes continuous efforts to improve and lean down their processes. These efforts make significant impacts on profit levels in the long term and can greatly reduce waste in many ways.

 

https://www.wsj.com/articles/eu-opens-investigation-into-essilor-luxottica-merger-1506443732

https://realfacts24.com/1657/eyeglasses-market-global-forecast-2018-2022-luxottica-formosa-optical-grand-vision-carl-zeiss-and-essilor/

http://www.luxottica.com/en/about-us/our-history?wt_mc=fbp.ourhistory

https://resources.toolsgroup.com/en-luxottica-cs

 

7 thoughts on “Eye Supply

  • April 5, 2018 at 8:21 am
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    Miller,

    This is a great example of a company that has properly adjusted its business model and strategy to a growing trend. It is a great point, and very clear in todays world that people’s view of glasses has changed from negative to stylish. Luxottica’s founder and chairman Leonardo del Vecchio made it a priority for the company to adopt vertical integration. This allowed the company to control all the different aspects of the supply chain such as optical shops, optical chains, lens production, and frame production.

    It will be interesting to see whether or not the consumer’s view of glasses is a trend or a fad. If the rise of glass wear is simply a trend, then Luxottica may find that it is over invested and vulnerable to the glass wear market because of its multiple acquisitions and vertical integration. This enables the company to manufacture the entire pair of glasses instead of just frames. This allows for a higher profit margin and allows the company to sell at whatever price they feel matches demand as opposed to going directly against its competition.

    SOURCE: http://tesi.eprints.luiss.it/9617/1/coppola-eric-tesi-2013.pdf
    http://www.luxottica.com/en/about-us/unique-approach/business-model

  • March 29, 2018 at 6:48 am
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    Miller!

    You know I saw the word Milan and was immediately excited about this post. That being said, I think Luxottica was a great company to analyze on the topic of supply chain inventory management because their management seems to be extremely competent in this area. To learn a little bit more about the company’s management, I read an interview-based article on Albert Josiah, the Italy-based company’s President of logistics and distribution to North America. With 55% of their sales going to the North American region, this is a critical job (I got this number from my article). When Josiah arrived at the company in 2013 he set 3 goals to originally transform the supply chain operations of the company. (1) He wanted to build a great team of people. In his interview, he said that everyone he works with he knows about their background and personal lives – as he conducted one-on-one interviews with them all before hiring them. This was astounding to me, because usually someone in his position would never put that much effort into knowing and understanding their workforce. This is definitely an advantage for employee job placement because he knows where they will be most competent, and therefore most effective. (2) Process Improvement in American distribution centers, most specifically in Atlanta. In 2015, the ‘Atlanta X’ plan was initiated which made the supply chain more automated and efficient. As you had mentioned in your post, this supply chain improvement definitely allowed them to work on their core business operations further, knowing that their warehouses were working effectively. (3) Product Analysis to better respond to specific customer needs and better allocate products to different locations based on demand. A big part of this job is knowing the different markets (ex. California) and what trends they are demanding. With an effective inventory management style and strong organization, the company can now make these distributions with ease, and focus more heavily on what these centers actually need.
    Overall, I think this company has been very productive over the last 5 years improving themselves continuously. I am impressed with their Italian management, which seems to be the conductor for the entire company. They truly are working towards their goal of “having its eyewear products worn by everyone.”
    http://www.scw-mag.com/sections/retail/442-luxottica-retail-north-america-1

  • March 28, 2018 at 11:46 pm
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    Robert,

    I am glad you brought up Luxottica because I found a very interesting 60 Minutes video on that eyewear manufacturer. It is no secret that a pair of glasses can cost more than some people’s rent nowadays. However, 60 Minutes goes into why that is. The total view of eyewear has completely changed. The video even talks about how they are not called glasses anymore, but instead, eyewear. Between the media, companies, and customers in general, it is no longer about medical reasons. It is a fashion choice to use glasses. When my mom was my age, it was not cool to wear glasses. People that wore glasses envied people who did not need anything to help them see. But now, people who do not even need glasses are going out and spending hundreds of dollars on something just to look cool at the beach that day. One of the more interesting points that this 60 Minutes makes is the fact that one would think with all the competition there is in the eyewear industry, competition would be driven down. However, there is such a high demand for “Gucci” or “RayBan” sunglasses that companies can basically charge twenty times what it costs to make a pair of glasses.

    https://www.youtube.com/watch?v=voUiWOGv8ec

  • March 28, 2018 at 10:03 pm
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    Robert,

    Seems like Luxottica really has their supply chain figured out, and that must be incredibly hard to do considering how many brands they have under their umbrella as well as two of the largest eyewear retailers. I’ve ordered online from Sunglass Hut before, and despite it being only one of the millions of orders they process, it went off without a hitch. I got my glasses within a few days. But like you mentioned, there was minimal personal touch. It felt a little too automated. There’s not much Luxottica can do from a supply chain management standpoint to add more personalization to their process, but one thing they could do is channel a S&OP mindset to bring together executives from all sectors of the business to organize plans as well as utilize different viewpoints. The link below collects input from executives across multiple different businesses and multiple different departments. The general consensus? Caring, listening, and simply doing more for customers. For example, my girlfriend’s mom is a big-time shopper with John Lewis, a British department store. To thank her for her continued business, they send her a gift basket each Christmas. Luxottica may not have as many repeat customers in a given year as John Lewis, but they can definitely utilize personalization tactics to build upon their strong supply chain management base.

    https://www.ngdata.com/how-to-improve-customer-experience/

  • March 28, 2018 at 8:13 pm
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    Great post!

    It’s crazy to think that one company, that started on such a smaller scale many years ago, now makes up for a majority of the glasses that we see. For a company that is on such a large scale like Luxottica, it is necessary for them to have a tight grip on their supply chain and their S&OP because of the fact that they handle so many unique brands, despite all of them being manufactured under their headquarters.

    It’s interesting to compare and contrast the supply chains of Luxottica and Warby Parker. Luxottica sources, manufactures, and assembles the glasses in Italy or China and then has them shipped to retail locations. Their supply chain is efficient and direct. On the other hand, Warby Parker has more flexibility towards the end of their supply chain, because the final lenses that are put into the frame are dependent on the customer demand. Warby Parker maintains a limited number of retail stores and pools most of its inventory. By doing this it lowers their holding costs and maintains a higher service level for their SKU’s

  • March 28, 2018 at 2:52 pm
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    Robert,

    You picked a great company to discuss managing SC inventory and S&OP. Luxottica is a massive company that dominates the market share in the eyeglasses market, especially as it relates to luxury brands. However, you corrected pointed out why they remain so successful and continue to build on this share of the market. Luxottica as a company continues to evaluate its methods and its entire supply chain.

    The S&OP of a company as large as Luxottica is broken down into the different brands they own and/or produce. At this point in the life of the company, the S&OP have seen what creates success and what does not. They also have been through good and bad times, so the company has continued to get better. But, this does not mean they sit back and continue to do what they have always done. Instead, it is vital for any company to look at ways they can improve all aspects of the business. In some ways, it is truly incredible that Luxottica is still able to accomplish this goal because of the sheer size of the firm. It takes a laser focused management team that can effectively communicate the company’s values and goals across all parts of the firm. Year in and year out, Luxottica continues to prove that they are able to stay ahead of any and all competition.

    In the end, Luxottica will continue to dominate the eyewear market as long as they never settle for their current position and continue to push forward in the market. Thanks again for sharing! I found your post very interesting.

  • March 28, 2018 at 1:53 pm
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    Great Topic Robert,
    Luxottica is a strong company that has been dominating the eyewear market for a number of years. Although recently they have been challenged by the emergence of new competitors with disruptive marketing strategies like Warby Parker, strong inventory management and continuous improvements to their processes (a Kaizen approach!) is clearly helping them stay on top.
    The article addresses a new system which Luxottica has begun using to analyze and improve their stock levels for maximum efficiency. The system (which is called the Service Optimizer) will allow them to improve the accuracy of their forecasts and subsequently reduce inventories. By better matching production to demand, Luxottica doesn’t need to create anticipation stock in advance of demand. This allows them to reduce holding costs while still serving as many customers as they can. The results from implementing this system have clearly been significant. Stock levels have been reduced by 10% and the need for human intervention has been reduced throughout the supply chain. Luxottica is now able to produce at a higher service level without fear of running out of inventory.
    Overall this is a great example of how even a company as large as Luxottica can always improve their processes to increase profits. The long term gains of this improvement will greatly decrease waste and improve Luxottica’s production efficiency.

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