Meeting modern SCMluxe challenges - a lesson from Azimut-Benetti

Many European luxury goods companies have faced bankruptcy in the current recession and recently have been acquired by business houses that are neither in the luxury trade nor from the same geographical and cultural sphere. An example is the recent acquisition of the Italian yacht maker Ferretti by the Shandong Heavy Industry Group, a Chinese enterprise with very little exposure to the luxury trade. Though Ferretti was saved from bankruptcy, it lost its “Made in Italy” tag and all the brand value this implies in the customer’s mind. How can luxury goods companies retain its cultural heritage (location and artisan workmanship included) and yet retain its cost effectiveness and cater to markets that demand industrial mass production mindsets in terms of quality. A successful example of a company which achieved these seemingly contrasting goals is of another Italian luxury boat maker Azimut-Benetti which continues to be family owned and debt free while maintaining their market share and profitability through the years. Let us look at some of the strategies that Azimut has put in place and see if lessons can be drawn from them:

1.       Constant Innovation

Azimut has recognized that a totally manual approach to production will not survive long term if the brand had to retain its “Made in Italy” tag without offshoring  to cheaper locations of manufacturing with low labour costs like China rather than the expensive Italian labour market. Hence the company has developed innovations that help address the high cost of Italian labour (or European for that matter). For example painting a yacht which takes thousands of man hours of effort is today done by robots (a first for any yacht maker). Also innovations in the product design itself such as lighter hulls (created by a process of vacuum infusion) resulting in less pollution and greater strength enable differentiation of the product vis a vis competition. Lastly a corporate mandate to increase fuel efficiency of every new model by 10% ensures that Azimut-Benetti remains leagues ahead of cheaper alternatives from low cost countries or competition (which uses cheaper mass production techniques)

2.       Building an entrepreneurial organization structure

Azimut is organized into 3 segments with each segment manager effectively running his unit as an entrepreneur. This level of delegation of authority and responsibility ensures that it’s not purely the “creative” minds at the top who manage the organization in its entirety. Managers can then build boats and manage their business profitably rather than rely on the “creatives” or the professional technical design team who may not be geared up for this role. Thus independent manufacture and marketing of boats is possible without the assistance of the core design team (normally a part of the family behind the business). Thus a level of professionalism is created within a family owned business

3.       Focus on Quality at activity level

Azimut has divided the entire process of boat making into 25 different activities with each activity headed by a process owner who signs off on the quality of the output for that activity. Thus as the construction passes through each activity or process, a series of quality checks are done, and the process owner for that activity signs off on the quality sheet before it passes onto the next sequential activity. Hence by the time the boat emerges at the end of the 25^th activity one has a perfect product. An example of a quality test in one of the activities is immersing the boat in a swimming pool for 48 hours post which it is immersed in its natural environment, the sea. A battery of tests carried out at these stages before the activity owner signs the quality sheet for this activity

Azimut 62S Italia - "Made in Italy"

Lastly an important lesson from Azimutt-Benetti for luxury companies is to go easy on debt – all expansion and investments have come from internal accruals and Azimutt even today is a zero debt company. Ferretti on the other hand was heavily leveraged ....... until Shandong Heavy Industry Group came along to help manage its debt repayment schedules and avoid bankruptcy

SCMluxe for premium products - a lesson from Apple

I bought an iPhone...yes, not a "smartphone" but an iPhone. So what makes this difference between Apple products and its competitors? The difference is in the strategies of SCMluxe that Apple uses more in parts than in its entirety. Does this make Apple product luxe or even premium? - not really (the Vertu could be one), but it does show that some of SCMluxe strategies could work very well for non-luxe products.

Lets see what Apple does and does not do, that makes it so successful vis a vis other competitors:

SCMluxe Strategies:

1. Distribution is controlled and in-house with almost no external contractors/wholesalers or even retail points. Notice the long queues outside Apple iStores every time a new product is released....the deliberately restricted volumes of first sale, hype before release and carefully constructed point of sale experience
2. The iStore experience - unlike its competitors the point of sale for Apple is an extension of the brand and its carefully managed to convey their messaging across all the stores especially in the iconic stores in London's Covent Garden or New York's Fifth Avenue. The retailing is very much done in high streets with expensive decor and location just like all luxury goods stores
3. Product quality - is another factor that Apple scores over its competitors. The design and quality makes no allowance for mediocrity (or the customer, for that matter). And like all self respecting luxury goods companies makes no allowance for the convenience of the customer (the BMW experience in leg space in earlier posts) - note the requirement for Apple customers having to lug the product to an iStore every time one has to replace its batteries instead of being able to do it at home. No other competitor actually would dare inconvenience its customer this way
4. Design - is the soul of Apple and is kept not only in-house (and in the country of origin, USA) but kept fiercely guarded with heavy investments/budgets
5. Pricing - though the price of its products are only nominally higher than its competitors, Apple strictly follows the no-discount or sale policy of SCMluxe

Non SCMluxe strategies:

1. Production/Manufacture - is almost completely out of its country of origin with a supply chain spreading across global low cost locations (mainly China)
2. Traditional mass production conveyor belt production systems - almost no artisanship or manual craftsmanship involved or communicated
3. Broad based customer segment not exactly targeting the high end luxury customer

Surprisingly this unique mixed up strategy works for Apple remarkably well and there are lessons to be learnt from it - the most important one being that SCMluxe components work for non-luxury products too. Only one must carefully analyse and see where and what components will work for the premium/mass premium product that one is considering the supply chain strategy