"In this business, you never stop worrying -- sometimes about your working capital and sometimes about your lost sales. Sometimes you're the bug; sometimes you're the windshield."
So says David Pellicer, founder of Etnia Barcelona, which specializes in exclusive eyewear highly valued for original, colorful designs that play off the fashionable image of the company's home base. Since starting up in 2001, the company has seen its revenues grow in excess of 30 percent a year. Sales for 2016 were projected to be over a million units, amounting to 72 million euros.
Pellicer attributes Etnia's success to the complex nature of the business. "We thrive on making the most difficult, highest quality products, and manufacturing in very, very small batches. The raw materials we use, the colors and designs we offer, are just too much for my big competitors. They wouldn't even consider playing in this sandbox."
Etnia's catalog can feature 100 different models at any given time. Every three months, the company launches a new collection of 20 to 30 different models in nine combinations of colors or shapes, and discontinues a similar number.
In this respect, Pellicer is unsentimental: "If a model doesn't sell well, we replace it with a new proposal. It's like running the produce section in a supermarket: we only keep the nicest apples, the freshest pears. We take no prisoners. Whatever our customers don't like, it just disappears from our catalog."
Around 70 percent of Etnia's frames are made with acetates from two different suppliers: Hua Yi, a Chinese subsidiary whose lead time is one month, and Mazzucchelli, an Italian family business that needs three months to fill an order.
With Mazzucchelli, the minimum order is 100 kilograms, and the necessary material has to be sourced well in advance, sight unseen. But it is hard to predict which frames will be successful: you don't want to place too big an order only to find you have to cull it later; neither do you want to underorder in case an item becomes a hot seller. For Pellicer, this is a real problem: "My gut feeling is that we lose 20 percent of our sales to unmet demand every year."
The production process for acetate frames is mostly performed manually and takes a total of 10 weeks. This is much slower than for metal glasses, which account for less than 30 percent of Etnia's product range.
The Future Is Now?
For more than 25 years, Joan Jané has worked at Hewlett-Packard in the area of supply chain logistics. He approached Pellicer about HP's latest product -- a new 3-D printer with Multi Jet Fusion technology. According to Jané, 3-D printing, or additive manufacturing, could transform Etnia's supply chain, reducing costs and improving working capital through streamlined logistics and optimized inventory. What's more, it would enable short runs, production more in line with demand, and product customization, including unrestricted geometric shapes.
A 3-D printer capable of working with the acetates used by Etnia should be ready within three years, said Jané, adding that eventually the technology would allow Etnia to use other materials previously unimaginable. Although industrial 3-D printers currently carry hefty price tags of up to $1 million, HP's version would cost between $130,000 and $155,000.
These words gave Pellicer food for thought. His technical team in China was already busy working on a new, fully automated assembly line, which would bring some manufacturing processes to Barcelona. This would help reduce lead times and costs. The productivity gains of doing this were estimated to be at least 20 percent, while the labor cost differential was just 30 percent.
Given all these considerations, what should Pellicer do? Should he halt his production plans, for which he had already made investments, and bet on 3-D printing instead? Or should he stick to his original plan and wait to see how the future of additive manufacturing unfolds? But how long should he wait? If additive manufacturing turns out to be as disruptive as Jané and others predict, might Pellicer be missing his chance?
The case study "Additive Manufacturing at Etnia Barcelona" (P-1155-E) by IESE professors Eduard Calvo, Alejandro Lago and Frederic Sabrià is available from IESE Publishing at www.iesep.com.