HOMAG Group Engineering Page: 1/ 11 December 2014

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1 HOMAG Group Engineering Page: 1/ 11 December 2014 Furniture production is changing The European furniture industry has been and still is confronted with great challenges. The framework conditions are continuously changing in many areas. As an integral part of the supply chain, the HOMAG Group intends to deal with this development proactively. The sixth part of the series "HOMAG Spotlight" outlines how the largest manufacturer of machines for wood processing is involved in shaping the changes on the furniture market. Another change took place back in the 1970s, and not just in the furniture industry. Supply began to exceed demand. This change from a seller's market to a buyer's market caused the market to split into two segments: mass production and mass customization. As a consequence, businesses in both segments increasingly came under pressure from two sides. On one side was the market with continuously increasing customer requirements, ever-decreasing model cycles and a greater variation even though quantities were falling. On the other side, the pressure as a result of competition increased, demanding high product quality, short delivery times, and higher flexibility, paired with a reduction in price which was reflected in an increasing price/performance ratio. For many producers, the result of this paradigm shift was a realignment of corporate objectives. While mass goods manufacturers continued to focus on the highest possible utilization of capacities, manufacturers of customized goods began to center their objectives on flexibility, meaning short throughput times. HOMAG Group Engineering responded to this situation on the one hand by developing double-sided machine concepts (powerline) that enable high output volumes. On the other hand, the engineers and technicians developed flexible single-sided machine concepts (flexline) that allow a high product variation. At the time, workshop production was the prevailing form, with an almost equally high ratio of machine production and manual work. With the emergence of Japanese production philosophies, views of production changed. In addition to the effectiveness of production plants, interest centered increasingly on efficiency. Classic workshop

2 HOMAG Group Engineering Page: 2/ 11 December 2014 production was replaced by cellular/line-type production. HOMAG Group Engineering recognized the potential of these philosophies at an early stage. Thus highly specialized production lines were created, taking the component-specific requirements into account. The interlinking of throughfeed machines was driven forward by the development of handling and transport systems, thereby increasing the level of mechanization. The extension of the HOMAG Group production portfolio along the entire value creation chain of the furniture industry enabled a holistic view of the manufacturing process. This allowed the development of solutions with coordinated performance classes for the individual production stages, for example, the cutting area or format edge processing. There was a further factor that became more important: Due to the high capital commitment and increasingly shorter product life cycles, warehouse stocks represented an increasing risk. A short throughput time in conjunction with an efficient use of resources thus became the strategic success position in business competition. The introduction of electronic data processing in the 1980s and 1990s was precisely what was needed to face this challenge. Data processing not only provided technical support for production; the furniture trade was also integrated and connected. The integration of production planning and control systems and the "MRP II" concept offered new possibilities for the planning and design of production concepts. HOMAG Engineering combined this with quick-setup production systems. In the "mass production" area, the result was concepts with multiple planning stages that allowed a minimum stock-based prefabrication, demand-based surface and assembly, and orderbased picking and delivery. This enabled customers to significantly reduce their capital commitment while simultaneously reducing throughput time. In the field of "mass customization", HOMAG Engineering initially implemented the concept "Grow with the HOMAG Group" with a hybrid strategy. This strategy allowed the market requirements to be interwoven with the possibilities of the furniture manufacturers. New production technologies, intelligent information and communication technologies, and strategy-based reorganization concepts were the

3 HOMAG Group Engineering Page: 3/ 11 December 2014 resulting response to the requirements for individualization and the no longer sufficient differentiation strategy. One example is the segmentation of production according to the proportionate quantity of the components. Identical standard parts from category A and B continue to be produced in high batch sizes in a conventional and economic process (based on demand) in a separate planning cycle and placed in interim storage. Components from category C, which vary greatly (for example, furniture fronts), are manufactured via a separate planning cycle according to individual customer requirements for form and color. This form of organization limits the capital commitment for the interim storage of the A/B components as well as the buffer required for the production of customerspecific components. Consistent further development of intelligent intralogistics concepts in conjunction with production control technology enabled production systems to be completely interlinked. Small cutting batches are possible thanks to predictive optimization algorithms that allow efficient use of resources in component cutting. The concepts do not require any interim storage and follow the "one-piece flow" principle. Breathing buffer systems may be used to compensate the output fluctuations of subsequent process steps and thus help to increase the availability of the entire system. The production control system permanently monitors the status of production and controls the production routes of the components dependent on the situation. Fully automated picking and consolidation warehouses provide the components in sequence for assembly. This allows the planning horizons of such modern systems to be reduced to just a few hours. The optimal use of machines and systems is one of the critical success factors in production. One aspect of this is meaningful simulation. Dynamic production processes are reproduced using models that can be configured to reflect reality as far as possible. With this technology, the expected performance can be assessed based on the customer-specific product range. This enables statements about productivity and throughput times. Furthermore, any possible bottlenecks can be analyzed before production begins and optimized if necessary. Any potential fault scenarios can also be investigated. This allows the customer to avoid oversizing, enabling them to minimize

4 HOMAG Group Engineering Page: 4/ 11 December 2014 the business risk. Simulation technology allows a saving of around two to four percent of the investment total. For Ligna 2011, HOMAG also developed a new software solution for optimizing resource efficiency in the area of machine usage, namely MMR (Machine Monitoring & Reporting). MMR goes significantly beyond the functional scope of classic tools for machine data capture. Thanks to intelligent recording logic, optimization potential is captured and shown clearly in graphical evaluations. A significant advantage of MMR is that all error messages are recorded and displayed centrally. The most frequent causes of faults are visible at a glance in the associated evaluation dialog. This is particularly effective for interlinked systems. Previously, a meaningful diagnosis of the bottleneck was almost impossible. The developments of the future will be shaped on the one hand by information technology. The constant further development of the "Industry 4.0" strategy or "interlinked production" will lead, via the "intelligent machine" (which has already been realized), to the "intelligent factory". Self-controlled logistical processes that allow the transport unit to make its own decisions based on the current situation lead to greater robustness and positive emergence of the overall system. The process will further reduce the buffer volume for separating the production stages. A further challenge in the future will be the ratio of production costs to transport costs. This will lead to the regionalization of production sites that service a local market. This trend can already be seen in other branches of production. As a result, a downsizing of production alongside increased flexibility and resource efficiency will be required. Customer-specific solutions, the realization of complete systems, and excellent industry expertise are the central elements that distinguish HOMAG Group Engineering. The delivery of customer-specific systems or cells is based on years of experience, high quality standards, a modular machine construction, and perfect performance from project planning to handover. From the initial discussions through to completion of the project, the project manager is the customer's personal contact and works with the company to take the project to a successful conclusion.

5 HOMAG Group Engineering Page: 5/ 11 December 2014 Another positive aspect for the customer is the business security that HOMAG Group offers thanks to its global structure. With its machines and systems, businesses can react to changing market requirements and economic influences with a high degree of flexibility. The customer's flexibility is also reflected in the services offered by the HOMAG Group: Their experts understand how to transfer expertise to other markets or technology areas and thus act quickly. This allows synergy effects to be used optimally around the world.

6 HOMAG Group Engineering Page: 6/ 11 December 2014 Statements: What HOMAG Group customers and the experts say 1) Customer interview: Joop Boerekamps, Head of Production, Bribus B.V. In 2012, the kitchen manufacturer Bribus B.V. from the Netherlands decided to switch production to batch size 1. Since investing in an interlinked system from the HOMAG Group, Bribus has been producing around 3000 customer-specific parts each day. With a combination of fully automated panel storage, saws, an edge banding machine with lasertec, a sorting system and a drilling system, the team around production manager Joop Boerekamps has managed to reduce costs but simultaneously increase the amount of flexibility offered with regard to designs as well as optimize the processes. In 2012, you invested in a complete batch size 1 system from HOMAG Group. What has changed for you since the machine was commissioned? With this new system, Bribus has achieved a significant increase in product quality for example, by using the lasertec process. We have also become much more flexible, for example when processing a wide variety of designs, with a simultaneous reduction in costs. In the process from sawing to edge banding and sorting, we have managed to reduce costs by around 26%. The implementation of the system was one of the biggest projects in your company history. How much support did you receive from HOMAG Group Engineering? At Bribus we decided to switch to production in batch size 1 and took HOMAG Group Engineering on board from the very beginning. Together we worked out the possibilities for implementing the new strategy as efficiently as possible. By simulating the complete system in advance, we were able to check whether the desired performance that we expect could be realized.

7 HOMAG Group Engineering Page: 7/ 11 December 2014 Another important aspect for our decision was that for the entire project, with all of its interlinked machines, we had one single contact person from HOMAG Group Engineering. This person was our contact from the project design stage to the implementation phase right up to the realization and that made communication much easier. I should also mention at this point that the implementation was very quick and within the desired time frame. What was the personal highlight for you over the course of the project, from the first idea to the commissioning of the new system? My personal highlight was the day on which more than 1000 people marveled at the new system during our open day for neighbors, friends, and acquaintances. Full of pride, our employees explained how the system works we knew then, my colleagues and I, that it was the right decision. The system was right. 2) Expert interview: Frieder Schuler, Head of Department, HOMAG Group Engineering Frieder Schuler has been employed at HOMAG Holzbearbeitungssysteme GmbH since He learned his job from the bottom up. He began his career as a carpenter's assistant subsequently completing his studies to obtain a degree in wood engineering. Since 2005, Schuler has been employed at HOMAG Group Engineering, initially as a project coordinator and then as a project and team leader. Since October 2013 he has been head of the complete engineering department. Here, around 60 employees create and manage customer-specific systems for designing systems for the production of furniture, construction elements, and flooring. What customer requirements drive the development for "mass customization" previously known in the industry as batch size 1? One of the main drivers is the increasing individualization in the furniture sector as a

8 HOMAG Group Engineering Page: 8/ 11 December 2014 result of the wide range of materials. What's more, the purchasing behavior of each and every one of us is changing, and our expectations for the shortest possible delivery period with absolute delivery reliability are very high. Another important topic, as always, is the interim storage of materials and furniture and the associated capital commitment for the company. This is where the two philosophies "storage = ability to deliver" versus "storage = capital commitment" come into play. What do you see as drivers of success for future production systems? Firstly, very high flexibility with regard to individual dimensions of components and in production variants. At the same time, very high machine, cell, and system availability is very important in meeting the high demands for delivery and schedule reliability. Thirdly, harmonious and valid software and control system solutions are becoming increasingly important they are the basis for integrated data flow in interlinked production systems. What distinguishes a successful overall package of a new investment? Success requires effective, efficient, and cooperative collaboration between the customer and HOMAG Group Engineering in the planning phase. The customerspecific requirements for the machines, cells, or systems are defined and described together this results in the implementation of the required unit, machine, and system technology. The system is constructed and commissioned completely in our plant. As soon as the system is accepted by the customer in the plant based on reference parts it is delivered and assembled on site with close monitoring of the schedule. The basic formula is a cooperative and professional collaboration between the customer and our contact persons at HOMAG Group Engineering, from the first idea up to commissioning and beyond.

9 HOMAG Group Engineering Page: 9/ 11 December 2014 Image source: HOMAG Group AG Image 1: The furniture market is experiencing a period of far-reaching changes Image 2: Market development and change on the furniture market Image 3: HOMAG Group Engineering understands the details of the industry

10 HOMAG Group Engineering Page: 10/ 11 December 2014 Image 4: An MMR overview screen with usage times, output quantity and optimization potential Image 5: System example: a batch size 1 system for 2000 parts per shift

11 HOMAG Group Engineering Page: 11/ 11 December 2014 Your contact: HOMAG Group AG Homagstrasse SCHOPFLOCH GERMANY Mr. Alexander Prokisch Head of Central Marketing Tel: +49 (0) Fax: +49 (0) alexander.prokisch@homag-group.com