Essilor Case Study
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SUPPLY CHAIN MANAGEMENT PROFILE
ESSILOR:
BUILDING AN EFFICIENT SUPPLY CHAIN TO
SERVE THE COMPANY’S MISSION
“Being able to serve, in a fast and economical manner, the 4.2 billion people who need lenses to live a
better life, from our 19 plants, means an efficient supply chain at the heart of our strategy. This is my
dream.”
—HUBERT SAGNIÈRES, CEO, ESSILOR
Every year or two, you go to an optician, who gives you a vision test and takes various eye measurements. Fast-forward a few hours or a couple of days: Voilà! Your glasses are waiting for you. Each lens is designed to perfectly suit the specific vision requirements of your left and right eyes while also taking into account how the two work together. In short, they are extremely personalized.
Thanks to ophthalmic-lens manufacturer Essilor, this is a familiar occurrence for millions of people in thousands of locations around the world. With more than 160 years of experience in the lens business, France-based Essilor Group—the name comes from the 1972 merger of Essel and Silor—is the world’s largest producer of corrective eyeglass lenses. In 2011, Essilor sold 385 million lenses in more than 100 countries, and revenue should be close to €5 billion in FY 2012.
Essilor is committed to providing people everywhere with high-quality vision. This goes beyond ensuring that people have glasses with the right prescription. Given the link that has been established between bad vision and a variety of problems, including poor health, subpar scholastic performance, compromised safety, reduced productivity at work, and even criminal behavior, Essilor is committed to helping the greatest number of people possible to see properly, in order to improve their quality of life.
“Essilor’s mission is to bring good vision to people around the world to increase their quality of life,” says Paul du Saillant, chief operating officer. “Our growth strategy is based on four pillars: innovation in products and services, development of the top and middle range of products, international growth via partnership and acquisition, and stimulation of demand to increase market size and fulfill our mission. Our supply chain has been one of our key strengths in executing this strategy. It is a real competitive advantage.”
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INNOVATION AND CUSTOMER SERVICE: A WINNING COMBINATION
Essilor is well known in the industry for its innovative products. In 2012, for the second year running, the company was listed as one of the world’s 30 most innovative companies by the U.S. magazine Forbes. Having invented the progressive lens under the brand Varilux back in 1959, the company continues to make new product development a top priority today. Every year, Essilor launches more than 200 new products: in 2011, 45 percent of sales came from products less than three years old. Among its latest innovations is the UV Crizal lens. The most complete anti-UV lens created to date, Crizal helps protect the eyes from rays that cause cataracts and blindness.
For Essilor, however, innovation also plays an important role in the way lenses are made. Over the past few years, the company has developed digital surfacing technologies that make it possible to polish lenses so that they are not only much more accurate but also thinner, lighter, and more flattering for the wearer. To make the best use of these new high-definition technologies, Essilor made changes in its manufacturing processes. The company also developed new optical equipment that allows opticians to capture the information—for example, the degree of eye rotation—that’s needed for lenses that are so precise.
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The Varilux S series, introduced in 2012, is the most recent result of these innovations. Based on
the latest advances in optics and a deep understanding of human physiology, it is the first progressive
lens to offer wide-angle vision correction without compromising stability in motion. By eliminating this
trade-off, the Varilux S series marks a breakthrough in optics development.
To fuel its innovation engine, Essilor relies on its Centers of Innovation and Technology (CIT),
acquisitions, and strategic partnerships with a number of companies with advanced technologies—for
example, Nikon, known worldwide for its high-quality lenses. Essilor also acquired a number of
companies, including Johnson & Johnson Vision Care’s ophthalmic-lens business, The Spectacle Lens
Group, whose proprietary technology can be used to make progressive lenses more personalized.
The focus on innovation explains why, in 2011, Essilor produced approximately 650,000 different
SKUs, which is an astounding number of products by any count. This number represents all the different
high-end and midrange lenses—including all the various frames, coatings, tints, and brands—that
Essilor produces to meet the needs of its different customer segments.
While all of this translates into ultrapersonalized products, it also adds a great deal of complexity to
the end-to-end supply chain—both the “good” complexity that is critical to competitive advantage and
the “bad” complexity that can add unwanted costs and delays. This is especially challenging in light of
the company’s other key priority: high-level customer service in the form of short lead times. Essilor has
consistently been able to achieve both goals because of its innovative approach to the supply chain.
TWO TYPES OF LENSES, TWO OPERATING MODELS
Essilor sells lenses to many different types of retail customers, ranging from international retail optical
chains to small independent opticians. The value proposition of the retail location is to offer high-quality
glasses that can be turned around quickly. One Essilor client, for example, was founded on the promise
that a customer can walk into one of its stores needing a new pair of glasses and walk out wearing them
an hour later.
Providing personalized products with short lead times is a tall order, because Essilor’s supply chain
needs to produce and deliver two major types of lenses, finished and semifinished. Finished lenses
correct a single vision problem like myopia (nearsightedness), whereas semifinished lenses address
presbyopia (farsightedness), a dual vision condition that people develop in middle age.
Essilor has met this challenge by developing two distinct operating models. Finished lenses are
made to stock, while semifinished lenses are a combination of made to stock and made to order.
FINISHED LENSES
The end-customer visits a glasses store (either retail chain or independent), where an optician asks
whether he wants the glasses to have any of a variety of features, including glare resistance, scratch
resistance, and UV protection. The optician sends the prescription purchase order to Essilor. This is a
retail business that is very local by nature, with hundreds of thousands of sales points sending in orders
every day.
Upstream, the lenses are mass-produced in factories dedicated to making finished lenses. During
this process, two molds are created for each lens—a convex mold for the front (outer) side of the lens
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and a concave mold for the back (inner) side.
After the lenses are molded, a number of coatings and tints are added to meet the needs of opticians
and retail customers. The lenses are then shipped to regional distribution centers (DCs), where they are
held as inventory. (Lenses can, however, be shipped directly to large accounts.) Upon receiving a
purchase order from an optician, the local DC sends the store the lenses that fit the specific requirements
of that order. Usually, the optician then edges and mounts the lenses in a frame of the end-customer’s
choosing, though this activity can be subcontracted to an Essilor finishing center.
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Finished Single-Vision Supply Chain
Source: Essilor
SEMIFINISHED LENSES Essilor finalizes its semifinished lenses in one of two ways, either in local prescription labs (Rx local
labs) or in mass-production labs (Rx export labs).
Semifinished Lenses, Local
In this operating model, the end-customer visits an independent optician. After taking eye
measurements, the optician (or large account) sends the prescription, along with a list of the specific
coatings requested by the end-customer, to the local Essilor prescription laboratory (Rx local lab). This
lab belongs to Essilor or to one of its partners; alternatively, it may be a laboratory that is not part of the
Essilor network. These premium progressive lenses are distinguished from finished lenses in four ways:
there is a wider variety, they are appropriate for a larger number of eye prescriptions, they are of a higher
quality, and they can be ordered with a greater number of coating options.
Upstream, semifinished lenses (clear and polarized) are mass-produced in a dedicated plant that
prepares only the front surface of the lenses. These lenses are shipped to a regional DC, where they are
held and subsequently sent to fill the stock of labs.
After receiving a prescription from the optician, the lab polishes the back surface of the lenses and
adds the coatings and tints requested by the optician. Surface finishing in the labs thus makes it possible
for Essilor to produce many different combinations of lenses while at the same time keeping the number
of lenses in inventory low.
The Rx local lab sends the lenses back to the optician, who edges and mounts them in a frame for
the end-customer; alternatively, the labs can do the edging and mounting. The whole order-fulfillment
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process—from the customer’s first visit to having glasses available for the customer—takes only two
days.
Semifinished and Export Supply Chain
Source: Essilor
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Semifinished Lenses for Export
A few years ago, Essilor added six lower-cost prescription labs to the supply chain “Rx export labs,”
which are mass-production labs located in low-cost countries. Instead of being finalized in regular Rx
labs, a portion of semifinished lenses are sent from the mass-production plants and regional DCs to Rx
export labs. These labs then ship the lenses to local labs and large accounts in markets worldwide for
last-mile consolidation. The Rx export lab in Mexico, for instance, supplies lenses to retail chains in the
United States. Only a few megastores have their own labs for finalizing lenses.
“The capability of the carriers used to transport product between countries in different continents
has evolved, as has IT,” notes Vice President of Supply Chain and Rx Strategy Eric Javellaud. “So we
were able to build export labs in low-cost countries while retaining proximity to developed markets.
This makes it possible to fulfill customer orders in just five days: two days in the lab to surface and treat
the lens, one day for transportation from the lab to the store, and two days in the store to do the edging
and mounting.”
DEVELOPING THE GLOBAL END-TO-END SUPPLY CHAIN
Up until the 1970s, Essilor produced its lenses in France and sold them mostly in Europe. Over the next
20 years, the company expanded internationally, setting up regional manufacturing and distribution
facilities to be close to its customers. Essilor’s first factories outside Europe were in the continental
United States and the Philippines, followed by plants in Mexico, Puerto Rico, and Brazil.
In the late 1990s, Essilor decided to go truly global, acquiring and partnering with companies to
expand its operational footprint. Unlike some companies, the lens maker developed its supply chain as
an integral part of its growth strategy. The goal was to grow in developed markets while establishing a
presence in emerging ones. To this end, Essilor built new factories in Thailand and China; the company
also acquired a number of lens makers in China.
At the same time, Essilor acquired or partnered with a number of Rx lab companies in the United
States and India. This bolstered the company’s capacity to produce quality progressive lenses in regions
with high demand.
Notably, the companies that joined the Essilor network were not forced to change all their processes
immediately. They did, however, have to adopt Essilor’s worldwide codification of products and use the
same electronic data interchange standards for placing orders. In return, they were given access to
Essilor’s advanced production technology. Even more important, they became part of Essilor’s global
supply chain and could enjoy the attendant steady customer demand and global economies of scale.
To support the global supply chain, Essilor put global sourcing and planning processes in place.
The first step was to consolidate the various IT systems used by operations worldwide into one
integrated end-to-end system. “We set up an ERP system that connected all the relevant operational
functions—order management, procurement, purchasing, and so on,” recalls Gérard Tourenq, vice
president of worldwide logistics. “This has enabled the company to set up the same processes in every
region worldwide.”
The global IT system also enables Essilor to manage a tremendous amount of information coming
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from the end-customer—the dozens of different types of progressive lenses as well as the wide range of
coatings and tints. Essilor’s IT system is robust enough to convey such information to both Rx labs and
Rx export labs alike.
At the same time, Essilor set up a global supply chain organization. Each of the company’s four
regions—America, Latin America, Europe, and AMERA (Asia, the Middle East, Russia, and
Africa)—has a supply chain department. A global team works on processes and practices with a focus
on planning, plant scheduling, and inventory management, while in each zone—that is, each subset of
countries in a particular region— managers are accountable for providing demand information and for
driving inventory replenishment.
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As a result of these global initiatives, Essilor became the first in its industry to develop a truly
global supply chain. By 2011, the company had 19 manufacturing plants—4 in Europe, 9 in southern
Asia, 1 in Japan, 4 in North and Central America, and 1 in Brazil—and 390 Rx labs.
BALANCING INVENTORY WITH SERVICE
By any standard, Essilor manages an enormous number of SKUs, which grows steadily as new products
are added to the portfolio. In this situation, excess and obsolete inventory presents a major challenge,
and makes it essential to find the right balance between costs and service.
For Essilor, the solution is to generally keep little if any inventory at its plants. As they are
produced, lenses are shipped to regional DCs or to Rx labs. The network varies by region: the United
States is very centralized, but lead-time requirements in Europe, with its various transportation
challenges, necessitate a DC in practically every country.
Moreover, the global planning process covers forecasts and inventory sizing for each subsidiary. In
addition to biannual reviews, there’s a monthly sales and operations planning process. The purpose is to
develop an achievable plan that is based on forecast demand, sales targets, and the operational
capabilities of Essilor, external partners, and suppliers. Each month, forecast updates are used to size
inventory and manage plant loads.
In the United States, Essilor implemented a replenishment process that’s based on real-time sales.
When an order for a pair of progressive lenses arrives at one of the 127 U.S. labs, it is filled with
semifinished lenses sitting on the lab shelf. Within 24 hours, those lenses are replaced automatically by
the nearest DC. The following Monday, the DC places a replenishment order online, which generates
make-to-order production at a plant in Mexico or Asia. Regardless of where the production takes place,
replenishment processes are a collaborative effort of the entire supply chain: the laboratories, the Essilor
subsidiaries, the geographic regions, and the global supply chain organization.
Essilor has refrained from fully automating some of its planning processes—a decision that
underscores the company’s interest in balancing cost savings with service. “By keeping some steps
dependent on human decision, we have the flexibility to change the product mix when needed,” explains
Tourenq. “If you optimize everything, what’s optimized could end up being a constraint.”
MASTERING COMPLEXITY
Producing some 650,000 SKUs and managing deliveries to some 200,000 ship-to points requires
extremely good management of complexity. In addition to differentiating flows for finished and
semifinished lenses, Essilor has greatly streamlined the delivery process. The company has worked
steadily to consolidate the number of U.S. distribution centers, which had multiplied as a result of
several acquisitions. Essilor has also pushed back the final packaging process so that it occurs after
receipt of a customer’s purchase order, thus eliminating the need for repackaging in the event of a
last-minute order change. In addition, the lens maker has begun shipping directly to customers where
possible.
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Essilor has also consistently turned to technology to manage complexity. This includes the use of
digital surfacing, which makes it possible to create different prescription surfaces at a late stage of
production. At the same time, the company has invested in advanced technologies that make it possible
to track individual customer orders as they progress through the supply chain.
Taken together, these practices have had a major impact, both operationally and financially. Not
only is Essilor recognized for service in the industry, its inventory as a percentage of sales declined from
an index of 100 in 1999 to one of 81 in 2011.
BUILDING IN ADAPTABILITY AND RELIABILITY
Being global is great, but it is not enough: a natural disaster can suddenly throw a supply chain off
course. Such events can be especially problematic for a company that views its customer service as a
source of competitive advantage.
Essilor deploys a number of strategies to mitigate the risk of disruption. First, it has built a closely
linked network around its Rx labs and distribution centers. This allows the company to adjust
production, capacity, distribution, and pricing with little advanced notice.1
Essilor has also made a point of placing redundant plants and additional inventory in vulnerable
parts of the supply chain. Its large network helped the lens maker weather the flooding in Thailand in
late 2011.
In addition, Essilor has taken steps to standardize its process architecture worldwide. The company
is standardizing manufacturing processes to facilitate moving production from one plant to another. It is
also standardizing distribution processes in order to shift inventory easily between DCs, while securing
the distribution network with a business continuity plan. At Essilor, adaptability also means being able
to develop new supply chain setups to meet customer needs. In response to requests by retail chain
customers, the lens maker has started developing value-added services, taking over some of its
customers’ supply chain responsibilities. For some large retailers, Essilor has built a supply chain to
provide lenses and to manage the vast number of frames they sell.
Essilor’s emphasis on flexibility makes sense in an industry where technological change is a
constant. Every new development, whether it’s the next generation of progressive lenses (there have
been four so far) or the next manufacturing process, makes it crucial for the supply chain to be able to
adapt readily and easily.
THE NEXT 2.5 BILLION
Worldwide, 4.2 billion people are in need of visual correction. Yet nearly 60 percent go without glasses,
either because they cannot afford them or because there’s no optical store nearby. Most of those 2.5
billion people live in emerging markets, 50 percent are under the poverty line, 60 percent are in rural
areas, and 30 percent are children. By 2030, if nothing is done globally, there could be as many as 3.5
billion people in need going without correction.
Making visual health accessible to the greatest number of people is for Essilor both an ambition and
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a responsibility. The company aims to help reverse, by 2020, the rise in the number of people lacking
access to visual correction.
To this end, Essilor is innovating with new products and business models and using partnerships
and new competencies to develop offerings that address customer needs. And a number of local
initiatives are helping to distribute lenses to the people who need them: mobile optical shops in rural
India, screening projects in China, and charity initiatives led by the Essilor Vision Foundation.
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Making a lasting contribution to society is one of the key objectives of Essilor as a company—and
an energizing purpose for its teams.
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