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Mk II Restructuring

Industry shifts

There are two major industry currents that are impacting us right now. The first is ETA’s efforts to remove themselves as the movement supplier of necessity for most of the Swiss industry. In my opinion it will not be a matter of “if” but a matter of “when” this will take place. The foundation for their exit has already been laid by the verticalization trend and companies like Sellita and Soprod. Assuming ETA is successful in its efforts my belief is that the transition will take quite some time. At the moment we are close to finalizing our first order with one of two alternative suppliers I have been talking to over the last few years. I should note that we are still receiving orders from ETA and will be placing our orders for 2012 in the next few weeks. The spigot is still open, just no one knows for how long.

Production capacity is the second intermediate term issue impacting the industry. The downturn in late 2008 was so sudden and extreme a lot of companies either folded, downsized, or radically restructured. The end result is that every point in the supply chain, with the exception of movement supply, is being choked by a shortage of skilled labor. I have counted myself lucky that all of our key suppliers are still standing (knock on wood). The reality is though that the Kingston, for example, is taking longer than expected for a number of small but not insignificant reasons related to this issue.

Mk II: Restructuring the business

There are several reasons for the strategic review that will be concluding in December and enacted at the end of January 2011:

* Customer service: I have made continual efforts to improve customer service over the last few years but the reality is that improvements have been hard to sustain.

* Operational efficiencies: One my major assumptions is proving to be wrong. I had assumed that I would be able to make enough improvements to operational efficiency so that I would be able to allocate more time to taking care of customers and the other administrative issues that I have to attend to. The reality is that I have nearly completed all of the operational improvements that I identified. While some of those added efficiencies will only begin to have a positive effect early next year it was obvious to me a few months ago that the cumulative effect would not be large enough.

* Watch Offering: Many of you may not realize that about 3 years ago I made the decision to build my own watch collection. Contrary to the perception of any marketing genius, we have spent the last few years building a supply chain and a collection of watches to sell and almost no time selling our watches. After 3 long years we finally have a complete offering that offers a critical mass for the company but I do not have enough time to allocate to Mk II’s marketing needs.

To help me re-organize the business I brought in a friend of mine that is a successful senior executive to help me think through Mk II’s future. Here are the conclusions:

* We need to sell more watches based on the anticipated changes that ETA is lobbying for.
* I work too hard because I have under-estimated the “cost” of my work. There is a good reason for this though. When your building a company by pulling on its own boot-straps you basically have to do everything. The company though is now too big to continue to grow this way. We have to adjust our pricing to reflect the total time required to build our watches.
* Our procedures and processes have to be updated. Most of this is back-office stuff that I have to do to make my job easier to manage the new structure.

This what these conclusions will mean to our customers and fans:

* Adding original designs to the watch collection: This process has already begun.
* Custom Option: This will be reserved for the Professional Series (price will also be being going up significantly on the custom option for those watches)
* We will shift to doing limited series versions of the Specialist Series in place of offering a custom option for this collection.
* Prices increases: Prices will be increasing across the entire collection starting January 31, 2011. This is primarily due to the devaluation of the dollar, in addition to the adjustments required by the new strategy.

Expected benefits to our clients and fans:

* Shorter lead times: We will be shortening lead times for custom watches to 6 weeks and to keep the backlog to 6 weeks by restricting ordering when there are delays
* Improvement to customer service: This should improve by the fact that the new strategy should give me more time.
* We will continue to do homage watches but they will be largely done within the parameters of the Specialist Series. The Project 300 will be the noticeable exception but likely to be a very rare exception.
* The value proposition will not change radically but it will change

The changes will take place on January 31, 2011. Until then the custom options and and the prices will stay the same. The one exception will be the Paradive where the pre-order price of $1,150 will be increasing to the standard MSRP of $1,395 on December 1, 2010. I wanted to announce these changes well in advance of the January 31st deadline to allow all of our fans to take advantage of the current pricing. If we see a un-manageable surge in custom watch orders we will begin restricting ordering ahead of January 31.

Kingston: Prep for Assembly

Here is what we do for each batch of components going out for assembly. It’s far from just shoving a bunch of components into a different box and shipping them out to Switzerland. I apologize in advance for the picture quality. These were quick and dirty shots I took during different stages of the process.

Each component is individually inspected; the dials, hands, cases, movements, and case backs.

Each of the hands and dials are carefully and individually packaged for safe transport:

For security reasons I am not going to post the pics of the final packaging used

For this first batch I did the work on the movements personally. I removed the day/date wheels and other parts to make the watches operate as non-date movements. The spare parts have already been packed and are ready for inclusion with the parts kits when the watches return from Switzerland.

The following is the work done on the cases…First we have to attach the crowns to the case body. As you will see in the other post that is also going up today the case supplier, like much of the rest of the industry, is under a lot of production capacity stress. During the process the case supplier actually lost 400 of the specially made Kingston crowns in October 2010. This is a rare occurrence, especially for a case supplier of this caliber. Basically it comes down to the fact that many manufacturers (like in the US) are short staffed but in the case of the watch industry they can’t train up enough people fast enough to fill the void left by the fallout from the Lehman Brothers collapse in Sept. 2008. The box shown below is all that we had (about 200 pieces)

After 2 weeks of urgent communication the crowns were confirmed to have been lost and I reached out to the crown supplier to find out the turnaround time. I was preparing for the worst, that is to say a lead time of about 3-6 months because Christmas is fast approaching and as I noted above anyone worth working with is now jammed with work.

Here the cases are being laid out on a workbench so that I can begin applying a protective coating to the casebodies before their trip to Switzerland.

Here half of the cases are covered with protective paint. I have to start turning over the case bodies so that I can apply coating to the mirror finished case backs. The case manufacturer didn’t use stickers to protect the case backs as the stickers can leave a residue. On polished case backs trying to remove the residue would guarantee the customer would end up scratching their brand new case back.

Now the cases are ready to be packed up with the rest of the parts for shipment to Switzerland. The protective blue coating you see here you won’t see when you receive your watches. We remove the coating with a special process so that we can do one final inspection before shipment.

About the crowns…We got exceptionally good news, almost too good to be true in fact. The crown supplier had made a lot of extras when they made the original order so the lead time was in fact only 6 weeks rather than months. I didn’t want to say anything until I actually had the crowns in hand because frankly I just couldn’t believe it. However here they are….we just got them in last week…

As you can see the label notes 400 pieces, invoiced on November 8, 2010. The order was actually 11 days early.

Sorry to keep everyone in the dark but one of the reasons this update was delayed was because of the crown issue. This isn’t the kind of news that I wanted you guys to worry about until I had a better answer than “may be it will be okay”. November 19th was going to be the date we either new everything was okay or we were f**ked. Fortunately it worked out…well except for the cost of the new crowns.

The first batch of C3 parts arrived at the assemblers late last week. We will be putting together the parts kit ordering pages over the next two weeks and e-mailing the Plankowners and the others that are eligible to order the spare parts kit at that time. Thanks for everyone’s patience. Everything is going as fast as it can be done, which is to say with the requisite amount of care. My apologies for the lack of updates but updates take time. I am not saying you aren’t entitled to them but I do have to balance the priorities. This update and the updates from the last few days have take more than 12 hours solid hours of work to put together and post. But that is also the reason we have put together a new strategy that will be put into practice at the end of January 2011.

Customer Service improvements

Similar to my stabilizing health the strides that we have made in improving customer service are only beginning to have an impact. Over the summer the time and effort that we made to improve our customer service infrastructure made the situation noticeably worse while we spent time and energy to integrate the software and built the new web site. Given that my health was quite a drag on productivity at the time I had to make a lot of hard choices about our short-term priorities versus long-term improvements.

CRM
Over the summer we installed a new Customer Relationship Management system (“CRM”). There are substantial benefits to the system, which I hope has become apparent to many that have had experience with it. The system allows us to better organize and prioritize service requests. Within each “ticket” all of our correspondence with each client is aggregated and has a more personal feel. I will admit that the idea of “ticket” and the way that the system randomly picks the ticket IDs can give everyone more of a deli counter, take-a-number feel but there were limits to what we could change. The most significant benefit of the system is that we are finally free of the side effects of SPAM filters blocking our e-mails.

There is also a lot more that the CRM system is capable of that we will begin to take advantage of over the next 18 months. Eventually the system will be accessible through your login on the main site. There are still some technical hurdles that we have to overcome before we can make that a reality. The system will also begin to handle our general inquiries in the future as well by having the system automatically generate tickets for customers through our e-mail system. We haven’t begun to use this capability yet because I still have to understand the system and its inner workings better. There is also a knowledge base function that I have started filling in with information that I will continue working on after the holidays that will make answers frequently asked questions more easily accessible.

New Web Site
As many of you have noticed we have launched an updated version of our web site. I hope that you have found it easier to navigate and to use. We made the navigation simpler and have divided our watch collection into two easier to reference groups. The Specialist Series which is our sub-$1,000 watches and The Professional Series which is our higher end line. The differences between the collections will be more evident over the next year as we make adjusts to the offerings. The biggest improvement to the system is one that will likely go un-noticed by anyone that doesn’t build web pages for a living but represents a significant improvement in efficiency. The web site is now almost entirely “dynamic”, which means that I can update the site with a click of a mouse, finally fixing the mistakes of our original web developer. The old site was entirely “static”, requiring a lot of software coding to make the smallest change to anything. This improvement represents an exponential reduction in the time required to update our web site. That may not sound impressive but when you are literally drowning in work every day counts.

The new web site took significantly longer to launch than originally advertised. The site had originally been slated to go live in July and after substantial delays I had to take a much more active role in the finishing the site in September and October. The new site is a critical part of our long-term strategy to stabilize the operational portion of the company thereby improving customer service and the overall Mk II experience.

In short with playing catch-up on the production, sending out the Kingston parts to assembly, and making improvements to our systems left me with a choice. I could A) keep up with the demands for updates, B) work on watches and the system or C) maintain my health but only choose 2 of the 3. I chose B and C and have relied on Winnie and used the blog to keep the communication lines open. However in the last few months I have come to a conclusion. I have had to make these kinds of choices one too many times and that prompted me to take a hard look at Mk II.

I have some pics to post of the process for the Kingston that I prepped but will have to post later this Monday. There is a significant quantity watches out for assembly and I am in the process of preparing more. I have a few e-mails out the assembler looking for updates but no word yet. This is the busiest time of the year for assemblers. In the mean time, in addition to continuing to prepare more watches for assembly, I am doing my best to clear the backlog in preparation for the return of the Kingstons.

Survey sent!

I have just sent out the e-mail update for the Project 300. If you have a deposit for the Project 300 please keep an eye out for it and take the survey that is included in the e-mail.

If you do not receive the e-mail please check your SPAM folder first. If you still do not see the e-mail please contact us at info@mkiiwatches.com so that we can try to re-send the update.

The update includes the new specifications and price for the project.