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issue: August 2003 APPLIANCE Magazine

On Location in Velenje, Slovenia
Gorenje: Moving into the Fast Track - Part 1

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by Adite Chatterjee, New Delhi Correspondent

Take a look at the map of Slovenia and chances are that you may not even find the tiny village named Gorenje. It's more than likely, however, that you would find the name of that village stamped onto appliances selling in 29 countries throughout the world.

Gorenje, the company that was established in 1950 in former Yugoslavia
Gorenje, the company that was established in 1950 in former Yugoslavia and took the name of the village where it was located, is today ranked among the top seven manufacturers of household appliances in Europe with net sales of Eur 805 million (181,158 million SIT) in 2002. It sells 1.15 million refrigerators and freezers; 900,000 cookers, ovens, and hobs; and 650,000 washing machines and dryers, totaling 2.7 million units a year.

In the 50 years of its existence, Gorenje has witnessed not just enormous changes, but has lived through some of the most earth-shattering moments of world history. It has survived the Communist era, seen the break up of Yugoslavia, and endured the transition from a command-and-control economy to an export-driven, market economy. Few companies could have survived such cataclysmic events, but Gorenje has thrived on them.

Starting off as a company manufacturing agricultural machinery in 1950, it began producing cookers in 1958 and exported its first consignment of 200 cookers to Germany in 1961. Since then, Gorenje has grown into a diversified company with interests in household appliances, furniture, restaurant and hotel services, machine building, and toolmaking. Gorenje has chosen the path of exports and has grown into one of the largest exporters of appliances in Europe. Today, household appliances comprise nearly 85% of Gorenje group's net sales, and 93% of its production is targeted at the export market. Not surprisingly, Gorenje boasts a strong distribution network. In 2002, it owned 44 companies: 15 at home and 29 outside of Slovenia.

According to Franjo Bobinac, CEO and president of the Board, Gorenje, d.d., "Gorenje has had an export orientation right from the beginning. Now we are in the process of developing pan-European brands with a focus on Gorenje as the principal brand of the group. Our ambition is to stay among the largest brand names in Europe and be among the top five companies in the next 5 years."

To meet this goal, a group strategic plan has been drafted through 2006 and according to this plan, "annual sales growth of 6% up to 2006 is anticipatedÉwhich would result in consolidated sales of 231 billion SIT or in excess of 1 billion Euro. The business area of household appliances remains the principal activityÉ.In 2006, the household appliances in the structure of total sales is projected to be 79.9%, furniture 6%, services 12.4%, and machine building and tool-making 1.7%."

In 2002, the group sold 70% of its products under its own brand names and the rest under the brand names of key customers. Its most significant brand is Gorenje, which is marketed through the company's own distribution channels. The Kšrting brand is popular in Italy, Greece, and Germany, while Galant is marketed in Germany through kitchen design studios. Sidex is available in France at Gorenje's distribution centers.

While Western Europe has been the single largest market for Gorenje appliances, as demand from East and Southeast Europe grows, the company is keen to take a leadership position in these markets as well. Sales to Southeast Europe have been growing, particularly in Croatia, Serbia, and Bosnia-Herzegovina. In 2002, the company achieved its largest increase in sales in Slovakia and the Czech Republic.

Also during 2002, Gorenje's sales value increased by 15% over the previous year - from 133,651 million SIT in 2001 to 153,651 million SIT in 2002 - driven by a wider product mix, new models, and higher value features. In 2002, household appliances contributed to 84.6% of Gorenje's total sales. Of this, the company says that cooking appliances' share was 30%, washing and drying appliances' share was 23%, and cooling appliances' contribution was 38%. Says Franc Kosec, member of the board for Development and Quality, "Our facility produces nearly 12,000 appliances every day. Annually, this works out to 1 million cookers, 800,000 washing and drying machines, and 1.2 million refrigerators."

Investing in Infrastructure

Washing machines undergo a
functional test at Gorenje's
|manufacturing facility.

To meet its ambitious growth plans, Gorenje's investments have grown from Euro 30 million in 1997 to Euro 65 million in 2002. These investments are going into the upgrade and expansion of its facility, which is spread over 60,000 sq m. Mr. Kosec tells APPLIANCE during a recent plant visit, "In the last 4 years we have upgraded our facilities. For example, the size of the refrigerator/freezer machines facility alone is now 30,000 sq m. This facility can now manufacture up to 1.5 million units." Adds Mr. Bobinac, "We realize that economies of scale is important, and we need to be big enough to competitive."

As part of the plan of developing a necessary infrastructure, a new automatic warehouse was established to enable the processing of appliances without delay. The high-bay storage capacity, which is being built to stock 140,000 units, is expected to become operational by April of next year.

While plant capacities are being expanded, Gorenje has simultaneously been upgrading its manufacturing systems and technologies. For instance, it is constantly re-engineering its processes to meet the latest standards. The introduction of the company's "thermovision" IR testing facility is one such example of Gorenje's constant quest for improvement. All products undergo a "thermovision" testing procedure, which until recently, was military technology. Says Peter Krepel, Gorenje board consultant, "Finished products undergo this test, which lasts up to 40 sec. The advantage is that we can be sure that every Gorenje [product] that is being shipped from our plant is 100-percent functional. What's more, the testing is done within the cycle time."

Gorenje has also been steadily increasing the level of automation in its assembly process, and to facilitate better productivity levels and a healthy work environment, the entire factory is air-conditioned. Says Mr. Kosec, "It is necessary to maintain a constant temperature of 24°C to 25°C. There are not too many factories that have air-conditioned facilities."

Flexibility, Gorenje's Mantra

The European Union comprises 50% of Gorenje's market, while the Southeast European market (excluding the former Yugoslavia and Albania) contribute 24% to Gorenje's sales. Eastern Europe is the another significant market, with a share of 16%. More than 8% of sales come from the home market Slovenia, while sales in the U.S., Australia, and other overseas markets constitute about 3%. As Aleksander Uranc, head of Marketing, points out, "There is intense competition in the European market. Global companies are investing in Eastern Europe and distribution is becoming more pan-European. The Korean and Chinese players have entered the fray, all of which happened while the EU market itself did not grow in 2002." Significantly for Gorenje, the company's sales grew by 15% during 2002.

Given the diversity of its markets and differences in consumer lifestyles and habits, Gorenje's top management realizes that flexibility is the key to achieving success in the European market. This is reflected in all of its business operations, whether it's on the factory floor, in new product launches, logistics management, or design and development.

Take for example, Gorenje's speed of new launches. Three years ago, the company launched a new generation of freestanding, 50-cm cookers. One year later 60-cm cookers were launched, and in 2002, Gorenje introduced built-in cookers. Says Andy Miklav, head of Product Management, "Our strategy is to be fast, to catch trends fast. Due to our flexibility, we can introduce new products quickly and offer the best home solutions to our customers."

He adds, "From concept phase to the product launch, a completely new product line takes about 3 1/2 years. Yet, we keep introducing variations in every product range, and these new variations would take up to 12 months. No other manufacturer has changed its product range as much as we have in the last 4 years. We are the fastest movers in the market."

While pace is clearly translating into additional sales for Gorenje, it is also increasing the complexity for its production team.

Gorenje: Moving into the Fast Track Part 2

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