Sony Corporation Supply Chain Management: Strategies & Ethics

Introduction

Sony Corporation is one of the world's leaders in supply chain management initiatives. The electronics giant has taken considerable steps to modernize its supply chain management, with generally excellent results. However, recent problems with business forecasting and a continually challenging marketplace suggest that Sony must continue — and even step up — efforts to improve its supply chain management process. At the same time, the company faces a number of ethical considerations that impact this process. Overall, maintaining and improving an efficient supply chain management system will likely remain an important challenge for Sony Corporation.

The flow of materials within and to Sony Corporation is closely related to the organization's function and the customers it serves. The Sony Corporation of America is a subsidiary of Sony Corporation of Tokyo. Sony Corporation recorded $20 billion in sales in the United States and an impressive $62.3 billion in consolidated annual sales for the fiscal year ending March 31, 2003. Sony is an established corporation, founded in 1946, with corporate headquarters in Tokyo and approximately 161,100 employees worldwide.

The company manufactures a diverse range of consumer electronics goods, including televisions, home and car audio systems, personal computers, personal digital assistants, digital cameras, video cameras, DVDs, semiconductors, the Sony PlayStation for video games, entertainment robots, and batteries (Sony Corporation). Given the remarkable diversity and breadth of Sony's product line and the large multinational nature of the company, Sony's customers are correspondingly diverse — spanning races, income levels, and nationalities. A Sony customer could be a single mother in Utah with a Sony car stereo, a 10-year-old child in Japan with a Sony PlayStation, or a millionaire in Kenya with a Sony home entertainment system.

Sony's flow of materials must reflect the company's function as a manufacturer of consumer electronics. As such, the company must maintain inventory and increase product turnover even in an uncertain global marketplace — a profoundly difficult task, given the large number of products Sony produces and the enormous international marketplace it serves.

Supply Chain Management: Concepts and Technology

There are a number of effective supply chain practices available to companies on both domestic and global markets. The supply chain is simply "the process of moving goods from the customer order through the raw materials stage, supply, production, and distribution of products to the customer" (Snell). Almost all businesses have supply chains — networks that obtain supplies and components, transform them into finished products, and distribute those finished products to consumers (Snell). The supply chain can encompass inventory control, production scheduling, plants, warehouses, distribution centers, product delivery, demand forecasting, and transportation of goods (Chudykowski).

Supply chain management is an approach that "oversees materials, finances, and information as each moves through a process — from supplier to manufacturer to wholesaler to retailer to consumer" (Snell). It involves the coordination of these flows between and within organizations. Effective supply chain management should focus on the most efficient movement of assets in order to fulfill demand and meet customer service needs (Snell). The best supply chain management systems are able to quickly adapt to change, function well within the company, and work effectively with both suppliers and customers (Chudykowski).

In today's modern workplace, information technologies (IT) are absolutely crucial in synchronizing these flows and ensuring that changes are instantly updated. The two main types of supply chain management software focus on either planning or execution. Planning software uses algorithms to determine the best way to fulfill a specific order, while execution software tracks the physical status of the supply chain. Many supply chain management software platforms contain information relevant both within and outside the organization, allowing for data sharing across diverse database systems — including information from suppliers and customers alike (Snell).

Supply chain management automation offers numerous advantages. For example, automation can quickly alert a corporation when its inventory of a specific product is low or when consumer demand for a product has dropped. As a result of this near-instantaneous information, companies can achieve lower production costs, improved quality, and reduced product development cycles. Automation can also improve customer service by helping customers find the best product at the best price, and it benefits suppliers by providing inventory control and reducing excess stock. Ultimately, supply chain management automation results in cost savings for corporations — particularly in a weak economy where companies are focused on bottom-line efficiency (Snell).

Sony Corporation employs a number of supply chain management processes. Recently, the company incorporated quantitative methods of business forecasting to improve its Canadian inventory system through a new supply chain management process. The new system was designed to cost-effectively reduce inventory and increase product turnover. Sony engaged Deloitte & Touche LLP to assist with SAP software implementation and supply chain management improvements (Deloitte & Touche).

Sony's Supply Chain Initiatives and Performance

Excess inventory is a significant concern for Sony due to the high cost of consumer electronics, which ties up substantial working capital. Furthermore, older inventory blocks the path for newer products. Accordingly, Sony tasked Deloitte & Touche LLP with creating an inventory supply system centered on a just-in-time inventory approach. Under this system, Sony is able to scientifically forecast which products will sell at a specific location at a specific point in time. This differs significantly from Sony's previous "just-in-case" inventory system, which focused on maintaining retail inventory to reduce lost sales. In the older model, information was used to forecast product demand before stocking inventory at the retail site. The newer just-in-time system allows Sony to carry less overall inventory and turn it over more rapidly. Additionally, the new system helped Sony reduce inventory losses, increase revenue, and improve customer service (Deloitte & Touche).

Sony has demonstrated clear success in implementing these supply chain changes. Modifications to Sony España's information systems resulted in a 15% improvement in productivity and a 30% reduction in time-to-market. A further adjustment to inventory systems reduced stock levels from 40 days to just 15 days. These are impressive results, clearly demonstrating Sony's ability to leverage supply chain management technology to its advantage (AME Info FZ LLC).

Sony has also used supply chain management to significantly reduce distribution time. Sony Electronics CIO Bill Gauld notes that supply chain efficiency is important both for customer loyalty and for the company's bottom line. Sony Electronics serves a wide range of customers — including consumers, businesses, and retailers — and is therefore challenged to satisfy groups with very different needs (Paul).

Sony Electronics' direct-ship initiative represents an important evolution in its supply chain management approach. Under this initiative, Sony Electronics ships products directly from the factory to the consumer, saving on warehousing costs. However, this system requires that Sony employees have access to data from nearly every segment of the supply chain in order to track product locations and determine the most efficient delivery method (Paul).

Sony has also launched several pilot supply chain management programs. In one notable example, the company shipped camcorders directly from its Japanese factories to retailers in the United States. Previously, these camcorders traveled by sea through multiple staging points over three to four months, compelling retailers to stockpile inventory. Under the new process, retailers receive their products within four or five days. The success of this pilot reduced Sony's logistics costs by 15 percent in 2000 (Paul).

Conclusion

CNN.com. "Slow Sales Slash Sony Profit." Wednesday, January 28, 2004. Posted 22:52 GMT. Accessed 06 March 2004. http://edition.cnn.com/2004/BUSINESS/01/28/song.result.reut/

Deloitte & Touche LLP — Canada. "Sony Canada Launches New High Velocity Supply Chain." Accessed 06 March 2004.

Paul, Lauren Gibbens. "Start Small, Think Big: Making Your Supply Chain More Efficient Sounds Like a Major Undertaking. You Can Begin Modestly and Still Reap Impressive Rewards." Accessed 03 March 2004.

Snell, Alice. Ilogos Research, Inc. "Supply Chain Management Defined." Accessed 03 March 2004.

Sony Corporation. Accessed 26 February 2004. http://www.sony.net/