         |
 |
 |
 
|
Bulgari Now Managing Inventory and Customer Demand with the Precision and Accuracy of Their Timepieces
The third largest luxury goods company in the world, Bulgari operates approximately 100 stores worldwide and also wholesales its products to a select network of independent retailers. Its products range from upscale perfumes and silk goods to fine watches and jewelry — all slow-moving, high-end fashion products for which forecasting demand and planning stock levels is notoriously difficult and prone to human error.
Supply Chain Challenges
The Bulgari supply chain is relatively complex, established to ensure that Bulgari products are manufactured in the regions of the world best known for a particular type of high quality product. Bulgari watches, for example, are produced in Switzerland; silk goods in the Lake Como district of northern Italy; and fine leather products in Tuscany. Finished goods are shipped to a central distribution center that supplies Bulgari stores and independent retailers through regional warehouses.
Provide reliable, accurate demand forecasting tools. Faced with long production lead times, Bulgari needed to make decisions on which items to manufacture and stock well in advance. However, factors such as low store-item level demand, which were making an accurate read of historical sales data challenging, and past stockouts, which were corrupting time series data for Bulgari's best-selling items, complicated and often frustrated the decision-making process.
Create better understanding of new product demand. In the luxury goods business, new products are the lifeblood of growth as customers look for new ideas and new designs. While Bulgari's creativity inspired innovative new products, anticipating future demand for these products became problematic, especially during times of growth.
Reduce forecasting errors for accessory goods. The accessories business is driven by the seasonal launch of new collections two to four times a year. Bulgari, with the lifecycle of its traditional core products typically spanning several years, was unaccustomed to this new pace when it launched its accessories product lines in 1997, and needed to change its supply management practices and processes to meet consumer demand.
Improve inventory planning at the store level. As the company grew, Bulgari centralized management of its 100 retail locations to gain economies of planning, production and distribution. However, this greatly complicated the process of determining appropriate inventory levels for the stores and hundreds of different products.
High Impact Results
Through its unique focus on the full product lifecycle combined with proprietary mathematical models to improve forecasting and supply planning, 4R was able to:
Improve forecasting accuracy. 4R developed a sophisticated forecasting tool that uses point-of-sales data to take into account past sales, seasonality and trends, and corrects for past stockouts. The tool enables Bulgari to better read demand signals and be more responsive to changing market conditions, increasing production for items in high demand and cutting production for others on a timely basis. Today, Bulgari's accessories, watches and jewelry business units use the 4R tool to accurately forecast demand for their products, overcoming the challenges presented by long production lead times.
Match new product supply with consumer demand. 4R helped increase Bulgari's revenue and profit by improving the company's ability to read early demand signals for new products, measure demand uncertainty, hedge and ultimately optimize initial production plans. 4R also established a process for reading initial orders when new products are first introduced to wholesale clients to more accurately predict total demand in the following 12 months. The process allows for adjustments to an initial production plan without causing significant inventory build-up. This approach has been applied successfully to several new product categories, increasing profitability by approximately $10 million for each new product line.
Adapt supply chain management to accessories business. 4R worked with Bulgari to completely redesign its supply chain management practices to better serve Bulgari's accessories business. 4R introduced such innovations as seasonal planning calendars, forecasting processes that integrate various data from different distribution channels, analytics-based management of inventories at retail stores, and continual replenishment of seasonal products. This allowed Bulgari's accessories business to rapidly flourish, experiencing more than 85 percent growth during the first 6 months of 2001 after implementation vs. the same period in 2000.
Determine the right mix and amount of products for each store. 4R designed a new inventory planning process that blends qualitative variables, such as store and item relevance to the Bulgari brand image,and quantitative factors, such as store sales, past sales of items with similar features and future demand forecast per item. Bulgari also uses the process to determine store and product profitability. As a result, Bulgari has been able to cut jewelry and accessories store inventories by 33 and 26 percent, respectively, while significantly enhancing its ability to meet customer demand for its products.