Philips Lighting: achieving global scale with local relevance
Philips Home Luminaires is part of the larger Royal Philips NV, which is a diversified health and well-being company, focused on improving people's lives through meaningful innovation in the areas of Healthcare, Consumer Lifestyle and Lighting. The company is a leader in cardiac care, acute care and home healthcare, energy efficient lighting solutions and new lighting applications, as well as male shaving and grooming and oral healthcare.
Philips Lighting is addressing an attractive global market that is valued in excess of EUR65 billion. There are many dynamics affecting the market, the most prominent being the movement from the use of replacement light bulbs (both conventional, and LED) to an embedded LED light source, where the Luminaire consists of a light source that does need to be replaced.
Further impetus comes as a result of LED making more innovative designs possible, and the additional capabilities offered by connected light, where the user can control their own environment, including the ability to change brightness and colour, as well as being able to turn lights on or off from their smart phone, even when outside the home.
By keeping abreast of these latest trends in both technology, and consumer demand, the Home Luminaires business is seeking to expand over the coming years. However, it can only do this profitably by producing products that are relevant to local tastes whilst leveraging its scale as a global manufacturer.
Technology as the driving force
Philips is keen to see the next generation of technology implemented across its verticals, which will not only enhance its competitive profile but will also help to provide its customers, and society at large, with long term solutions to ever-pressing energy issues. By simultaneously implementing LED and IoT connected technologies the company has been able to design and produce luminaires which combine both; these are the next generation of lighting solutions.
Mika Salomaa, Vice President of Operations for Philips Lighting’s Home lighting business commented on this decision: “We see lighting as the cornerstone of the Internet of Things. People are thinking more and more about how they are consuming their energy, especially associated with lighting, and if you think especially about integrated LEDs, the uses and benefits are very broad.”
For Philips, LEDs came into the company’s product offerings slowly at first, as a replacement bulb, but then snowballed into a standalone set of products as the quality of light that the technology was able to deliver improved, and as the cost of production began to fall.
Neil Adams, Head of Operations Strategy & Manufacturing, said: “We are helping people make the transition from using conventional light bulbs to fully adopting LEDs. These also provide a basis for IoT connected operation, which then provides a degree of control which may be the ability to switch the light on remotely, change its colour, or adjust intensity.
“Lighting has gone from lightbulbs that are replaced every six months, to something that is essentially a lock and leave. The whole luminaire space is going towards atmosphere, and user-control; it is an important part of the connected home trend.
“As a result, we are setting ourselves up to grow our business in new and dynamic ways. We see a mega trend that’s driving people to replace their old technology with new, and to focus more on light as a feature in the home. In terms of market growth, the market for home luminaires is set to grow significantly more than GDP.”
Segmented business streams
Obsolescence, particularly in the form of write downs or write offs has traditionally been a big issue for Philips, not to mention a major drain on its profitability. Salomaa explained that the company was diverting a significant percentage of its consumer luminaire manufacturing operations away from China in order to reduce these costs, as well as to reduce its time to market.
Utilising the expertise of regional partners has been key to securing product relevancy across the board; using the skills and facilities of Biazet, Poland’s largest producer of small domestic appliances is one such example of this. Working with established manufacturers in this way has enabled Philips to seamlessly deploy its regional manufacturing strategy.
Another key supplier in this territory has been parts manufacturer PNE.
Adams said: “Regional manufacturing and segmented business streams are both cornerstones. Regional manufacturing is there because of the diversity of the product portfolio, and the ability to reduce lead times/ dependence on long term forecasts. It’s a design driven business and the unit levels are low, so predictability is low; if you include obsolescence cost, then it’s more cost effective to produce in region’’.
“It really is a case of understanding the fundamental dynamics of the business and understanding what’s driving costs, and then looking at smart ways of to mitigate these costs. The resulting approach has fundamental implications for not only our physical infrastructure but also how we plan, and make products, as well as how we design products, and what we offer in terms of service to our customers.”
Order fulfilment is achieved through a portfolio of supply models, underpinned by a lean operating system which provides for a standard way of working across all locations per supply model. Although still in pilot mode, additive manufacturing is being introduced as a key enabler to late stage configuration, and also as a way of producing low volume components on demand.
Adams said: “Segmented business streams offer us the opportunity to engage the best supply model for a given product/customer combination. Wherever possible, we either make, or configure to order’’.
“The lean operating system is our attempt to standardise how we operate these supply modes, and by doing so we are laying the foundations for improved productivity going forward.”
Philips’ segmented business streams model is made up of a number of key elements, but essentially comes down to the notion that its business can be optimised by being broken into logical segments. Each of these exhibit different characteristics, and lends itself to one of a limited number of specific supply models, where the trade-offs are optimum.
The key building blocks of this model consist of introducing the segmented business streams in particular formal, differentiated, and aligned supply policies. Further factors taken into account are the supply models portfolio, product platforms (in support of late stage configuration) and end-to-end analytics. By concentrating the number of product platforms at its disposal (with the end-goal of narrowing them down to 10 ‘core’ platforms, Philips is intending to support configuring its luminaires in the latter stages of production.
Adams said: “We focused on building a vertically integrated ecosystem alongside our suppliers and customers in order to further shorten time from innovation to market, not to mention the lead time for order fulfilment. We also established alternative logistics models in order to shorten end to end lead times.”
Philips also utilises end-to-end analytics to manage trade-offs using total cost of ownership (TCO). Adams said: “We are designing platforms based on an understanding of the total cost across a range of products versus peak design costs. This includes the total cost of ownership across the full value-chain. Plus changes to decision rights, KPI’s, and the governance model to make this happen.”
Not content with merely keeping up with the latest consumer and technological trends, Philips Lighting has shown through its sophisticated manufacturing strategy that delivering cost effective, locally relevant products can be achieved, while also leveraging economies of scale.
Integrating the latest in manufacturing technologies
Looking to the integration of advanced manufacturing technologies, including additive manufacturing as part of the manufacturing, and product design process, Adams explained: “It can be used to make the whole luminaire as well as to enable late stage configuration; it can also be used to reduce obsolescence risk on low volume and non-common components.
“Additive also reduces costs in a number of areas: material costs are lower as a result of our ability to reduce the number of components; conversion costs are also lower, as it also knocks out 70 percent of the direct labour involved in producing a product.
“Overhead costs are lower because we have fewer people planning components, which is a big part of luminaire production; we have fewer people buying components so the procurement overhead also will fall significantly. From a marketing perspective it makes variety cost effective’’.
By deploying additive manufacturing on an industrial scale, Philips is able to utilise mass customisation, giving customers the opportunity to have some design input on the luminaires, since a much greater percentage can be made to order through this process.
This system also enables Philips to remove the constraint around component commonality; obsolescence also becomes much less of a threat since parts are produced on a more on-demand model rather than a forecast.