This paper examines how Sony Corporation has transformed its supply chain into a strategic competitive advantage across five global business segments. Drawing on Sony's investor relations data and supply chain literature, the analysis covers Sony's adoption of Vendor Managed Inventory (VMI), Sales and Operations Planning (S&OP), demand-driven supply networks, and Internet-based collaboration platforms. The paper places particular emphasis on Sony's use of the Perfect Order Index (POI) as a cross-divisional performance metric and explores how the company adapted the Toyota Production System's knowledge-sharing model to foster supplier collaboration and intellectual property development. Key performance indicators and the company's metrics-driven culture are also discussed.
The strategic series of systems, processes, and programs that enable any company to consistently exceed customer expectations while remaining profitable is the performance of its supply chain. 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 with very rapid product lifecycles and supply chains that must support swift 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 the company 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 a strong focus on supply chain performance and optimization (Sony Investor Relations, 2012).
The value chain of Sony is so deeply embedded in supply chain performance that it is common for senior managers of supply chain planning, supply chain management, optimization, and third-party logistics to regularly oversee 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 its formidable record of internal innovation and global sales success. With nearly 70% of global revenues emanating from foreign markets, Japan-based Sony has had to become agile and highly adept at managing complex supply chains on a global scale. The company has successfully transformed its supply chain into a formidable competitive strength at the strategic level worldwide.
The industries in which Sony competes are known for very rapid product development cycles, short product lifecycles, and highly synchronized supply chains that are critical for profitability. All of these factors have elevated supply chains to a strategic role in the industry and explain why Sony has continued to invest heavily in optimizing its own. With 70% of total revenues 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 a very high level of supplier coordination and synchronization has led Sony to 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 on a 24/7 basis, as many of their suppliers are located in diverse time zones.
Through a series of reorganizations that occurred throughout the 2007–2012 timeframe, Sony created an organizational structure that replicates the core functions of a value chain model. 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 recognizing how critical the supply chain is as a competitive asset and catalyst for future growth. It also gives Sony the ability to track supply chain performance at a global level, parsing data down to the product level when needed.
Sony is by nature a highly quantitative culture with a strong focus on measuring the performance of strategically important processes. The supply chain has its own internal dashboard as a result. Sony is also one of the few global high-tech manufacturers to orchestrate its entire supply chain across business units well enough to measure perfect order performance. A perfect order is defined as when the customer — whether from a B2B or B2C industry — receives the right products ordered, at the right time, with perfect execution of delivery (Blanchard, 2007; Novack & Thomas, 2004). For Sony's industrial electronics and higher-end B2B marketing strategy, perfect order performance is critical for long-term growth and retaining enterprise customers. The perfect order metric is posted internally within all Sony production facilities, and production teams are evaluated on this and other metrics on a periodic basis (Sony Investor Relations, 2012).
Sony has also taken an innovative approach to bringing its suppliers into the overall innovation process. Rather than concentrating on suppliers merely 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 standards. 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 recognized as the model for Sony's supply chain collaboration and knowledge-sharing system (Dyer & Nobeoka, 2000).
Sony has continued to place a very high emphasis on this platform and framework, as the intellectual property (IP) associated with its game consoles changes significantly over time. Sony's use of knowledge-sharing networks has given the company the opportunity to stay ahead of 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.
"POI metric structure and cross-divisional application"
"KPI table and 22% transaction cost reduction goal"
Sony's rapid pace of new product introductions and myriad product and service strategies continue to give the company a competitive advantage in the high-tech, entertainment, gaming, and ancillary industries. The challenges for Sony going forward are to continually improve its supply chains for greater agility and faster time-to-market while simultaneously increasing quality. The approach Sony has taken with regard to the Perfect Order framework, heavy reliance on intellectual property (IP), and knowledge sharing all underscore a highly metrics-driven organization. Results are immediately quantified and shared across the entire organization, which further reinforces the strategies of supply chain optimization.
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