Sony's Supply Chain Management Strategies: Best Practices in High Tech Supply Chains

The strategic series of systems, processes and programs that enable any company to exceed customer expectations on a consistent basis and be profitable is the performance of their supply chains. The synchronization of supply chains ensures that customers will have a consistent positive experience when purchasing from a company, and this holds true for both Business-to-Business (B2B) and Business-to-Consumer (B2C) companies (Cirtita, Glaser-Segura, 2012) . For those companies that compete in industries that have very rapid product lifecycles and supply chains that must support very rapid shifts in product and service strategy, the challenges are multiplied (Li, Lin, 2006). Sony Corporation is one of the most-recognized brands globally in consumer and industrial electronics. The many supply chain best practices that Sony has developed over decades of intensive effort and study have given them the ability to compete in five core business segments on a global scale (Sony Investor Relations, 2012). These five business segments include financial services, games, home and personal electronics, motion pictures and entertainment and nearly a dozen other ancillary businesses. What unifies the Sony value chain across these diverse businesses is their strong focus on supply chain performance and optimization (Sony Investor Relations, 2012). The value chain of Sony is so engrained into supply chain performance that it is common for the senior managers of supply chain planning, supply chain management, optimization and 3rd party logistics to regularly manage the new product development and introduction (NPDI) teams and processes. The intent of this analysis is to evaluate how Sony has transformed its supply chain into a potent differentiator that fuels their formidable record of internal innovation and global sales success. With nearly 70% of global revenues emanating from foreign markets, Japanese-based Sony has had to become agile and very adept at managing complex supply chains on a global scale. The company has been able to successfully transform its supply chain into a formidable competitive strength at a strategic level globally.

How Sony Has Transformed Its Supply Chain

Into A Global Competitive Advantage

The series of industries that Sony competes in are known for their very rapid product development cycles, short lifecycles, and highly synchronized supply chains that are critical for products to be profitable. All of these factors are what has elevated supply chains to such a strategic role in the industry, and why Sony ahs continued to invest exceptionally heavily into optimizing their own. With 70% of their total revenues being generated outside Japan, Sony has also had to master advanced supply chain concepts including how to initiate and maintain Vendor Managed Inventory (VMI), Sales & Operations Planning (S&OP) and the development and fine-tuning of globally-based demand driven supply networks (DDSN). Sony also relies on contract manufacturing for its most rapidly churning products including memory modules and memory enhancement products across all product lines. The contract manufacturing aspects of their business are also predicated on using VMI-based platforms originally designed for their personal computer and high-end camera businesses. The need for having a very high level of supplier coordination and synchronization has made Sony adopt advanced Internet-based supply chain management and collaboration platforms as well. These have allowed the company to coordinate with suppliers on new product development literally on a 24/7 basis as many of their suppliers are in diverse time zone locations. Through a series of reorganizations that occurred throughout the 2007 -- 2012 timeframe Sony has created an organizational structure that replicates the core functions of a value chain model. Figure 1, Organizational Concept Chart of Businesses, Sony Corporation graphically illustrates how the company is organized as of May, 2012.

Figure 1: Organizational Concept Chart of Businesses, Sony Corporation

Sources: (Sony Investor Relations, 2012) & http://www.sony.net/SonyInfo/CorporateInfo/Data/organization.html

What is most significant about this model is the fact that manufacturing, logistics, procurement and quality management are part of the core platform of the organizational structure. This has evolved within Sony as a result of the recognition of hwo critical their supply chain is as a competitive asset and catalyst for future growth. This also gives Sony the ability to track supply chain performance on global level, parsing the data down to the product level when needed. Sony is by nature a very quantitatively-based culture with a strong focus on measuring the performance of strategically important processes, with the supply chain having its own internal dashboard as a result. Sony is also one of the few global high tech manufacturers to orchestrate their entire supply chain across business units so well...

A perfect order by definition is when the customer, whether they are form a B2B or B2C-based industry, receive the right products order, at the right time, with perfect execution of delivery (Blanchard, 2007) (Novack, Thomas, 2004). For Sony in their industrial electronics and higher-end B2B marketing strategy, perfect order performance is critical for long-term growth and holding onto enterprise customers. The perfect order metric is posted internally within all Sony production facilities and production teams are evaluated on this and other metrics shown later in this analysis on a periodic basis (Sony Investor Relations, 2012).
Sony has also taken an innovative approach to bringing its suppliers into the overall innovation process as well. Instead of merely concentrating on suppliers from a component, subassembly or finished goods assembly perspective, Sony has created a global collaborative network for suppliers to share information and insights on how to better meet shared quality levels. This supply chain collaboration initiative is unprecedented in the high technology industry, yet has been successfully used for decades in the automotive industry. The Toyota Production System (TPS) is known as the model for the Sony supply chain collaboration and knowledge sharing system (Dyer, Nobeoka, 2000). Figure 2 shows an example of how a knowledge sharing system based on collaborative supply chain management evolves over time. Sony has continued to place a very high emphasis on this platform and framework as the Intellectual Property (IP) associated with their game consoles changes significantly over time. Sony's use of knowledge sharing networks has given them the opportunity to stay in front of the innovations occurring in the industry and being generated by suppliers, many of whom have revenue sharing arrangements with the company based on the relative contributions of their intellectual property contributions.

Figure 2: Maturation process of the Toyota Production System as a Knowledge-sharing Platform For Supply Chain Partners

Source: (Dyer, Nobeoka, 2000)

Sony and The Perfect Order Index

The culture within Sony is highly attuned to innovation in addition to quantifying the overall level of supply chain performance as well (Sony Investor Relations, 2012). The reliance on metrics to streamline and optimize supply chain performance is what many analysts have attributed the company's rapid new product introduction process and pace of product design (Percy, 2004).

One of the most important metrics the company relies on in their efforts to synchronize supply chains across all subsidiaries is The Perfect Order Index (POI) (Columbus, 2008) (Johnson, 2007). This single metric is highly effective in defining the relative level of collaboration and shared fulfillment across complex supply chains. Sony's supply chain teams have also indexed this metric to overall customer satisfaction scores by business unit and found a significant correlation. The foundational elements of the POI are on-time delivery percentage, percentage of orders shipped complete, damage-free order percentage, and accurate invoicing (Columbus, 2008). In order to create the POI, Sony has created a series of computer programs that will in real time upload these metrics, multiply them together in an equation, and then provide a metric of performance on dashboards (Sony Investor Relations, 2012). These metrics can be seen globally by anyone who is a member of the Sony supply chain teams and task forces. Sony also indexes these over the long-term to evaluate overall POI performance by product line, and also by marketing and selling strategy. The company quickly exiting the more complex build-to-order personal computer market for example when they realized that the POI levels for those product lines were well below their internal standards and averages. Sony has created a series of metrics that capture the status of supply chain performance and reliability across all product divisions. While there are metrics and key performance indicators (KPIs) that are specific to each division, Table 1, Sony measures of Supply Chain Performance, show the commonly used ones across all business units.

Based on analysis of the following sources: (Blanchard, 2007) (Columbus, 2008) (Hughes, Balasescu, Balasescu, 2008) (Sony Investor Relations, 2012)

In addition to these metrics and KPIs, Sony has set an aggressive goal of trimming transaction costs by up to 22% using their supply chain planning and collaboration platforms, including the knowledge sharing system now in place (Sony Investor Relations, 2012). Sony's many challenges from a supply chain orchestration and execution perspective have been exacerbated by slowing economic growth and more competitors. The reliance on the metrics shown in Table 1 has helped to significantly streamline performance and keep the company focused on longer-term initiatives and growth.

Conclusion

Sony's rapid pace of new product introductions…