Discuss about the Supply Chain Management for the 21st Century.
Supply chain management is the back bone of an organisation and play a significant role in its overall success. Supply chain management is defined as the management of flow of goods and services across different stages of supply chain (Hugos, 2011). It is the management of flow of information, funds and products from one stage to other. This report aims at analysing the effectiveness of four key flows in Sony’s supply chain, its make process and the supply chain forecasting. Based on the outcomes of analysis, suitable recommendations are offered in relation to supply chain management concepts and theories.
Headquartered in Tokyo, Japan, Sony Corporation is a multinational conglomerate consumer electronics company which specializes in the design, manufacturing and sales of diversified electronic equipments, devices, instruments, game consoles and software for professional, consumer and industrial markets (Sony Corporation, 2016). Sony Corporation is a recognised name in consumer electronics and occupies second position in the world behind Matsushita Electric Corporation. The primary segments of Sony include Mobile Communications, Imaging products and solutions, Game and network services, Home entertainment and sound, Pictures, Devices, Financial Services, Music etc. The company is also engaged in the acquisition, production and distribution of television programming and motion pictures. Sony’s mission is to become a company that can fulfil and inspire the curiosity of its global consumers. The company’s pursuit for innovation, unlimited passion for content, technology and services, enable the delivery of ground-breaking entertainment and new excitement in a way that serves as a competitive advantage against rivals. Sony indulges in responsible supply chain management and is recognised worldwide for having developed one of the world’s more effective, efficient and ethical supply chains (Sony, 2016). The company manufactures its products in different parts across the globe to effectively and efficiently meet the demands of its customers and sources only from supplier that share common social and environmental values.
A supply chain comprises of five main stages namely, customers, retailers, wholesalers or distributors, manufacturers and components or raw material suppliers (Boyer & Verma, 2009). Each stage within a supply chain is connected with the flow of information, products, funds and returns. Different stages within a supply chain have different ownerships; however they work in close coordination with each other to share a common goal of satisfying the expectations of end customers. To achieve this goal it is important to emphasize on the effectiveness of four basic flows connecting different stages of supply chain. Flow of physical goods and services, flow of cash, flow of information and reverse flow of returned goods must take place in an effective manner to smoothen the overall functioning of supply chain (Christopher, 2013). Sony in this case is the manufacturer who sources its components and raw materials from suppliers across the globe and sells its finished products directly and through intermediaries like wholesalers, distributors and retailers. Sony’s Supply chain illustrating different stages and four key flows across the stages is shown in diagram below.
Sony’s Supply Chain
Fig.1. Source: Made by Student (2016)
Flow of physical good and services: Sony has developed a responsible supply chain wherein the company has shown long term commitment in carrying out its supply chain operations in an environmentally and socially responsible manner. The company sources its components and other raw materials from suppliers that comply with its ethical code of conduct called “Sony Group Code of Conduct” and share common ethical values (Sony, 2016). The company carries out its transportation and distribution operations in an environmental friendly manner and ensure that they contribution towards environmental pollution remains negligible. Flow of physical goods and services occur in a downstream between stages as shown in figure.
Flow of Information: Sony’s is recognised worldwide for the smooth functioning of its supply chain. Success of any supply chain greatly depends on the way flow of information is managed back and forth along different stages (Myerson, 2012). Information flows both in forward and backward direction in Sony’s supply chain. Sony has partnered with the world’s largest Enterprise Resource Planning (ERP) software service provider helping the company effectively manage the flow of information back and forth its supply chain (Ferrari, 2009).
Flow of Cash: Flow of cash in Sony’s supply chain occurs effectively upstream from the customer to intermediaries, to Sony and them to its suppliers. Sony collects money from its customers and intermediaries and mostly maintains a Net 90 days term with its suppliers to maintain the desired liquidity of cash level which help the company protect itself from severe liquidity problems (Ferrari, 2009).
Flow of Return products: The return of product flow is also termed as reverse supply chain for products that require replacement or repairs is managed effective by Sony. The company has partnered with specialised reverse logistics operators that utilise different arrangements when compared to operators managing forward logistics for the company. Sony has moved from specialisation to comprehensive thinking to achieve success in reverse logistics (Hemming, 2007). Taking an integrated approach to reverse materials planning has helped the company save huge costs on returns logistics.
Sony effectively managed the four key flows of products, cash, information and return products in its supply chain, however the company needs to improve its flow of return products to make its supply chain more cost-effective. It is recommended to outsource the process of reverse logistics to other companies that have expertise in the same as process of reverse logistics is different as compared to forward logistics. Outsourcing the process will not only help saving the cost spent on maintaining an inhouse team but will also help improving the process.
The overall success of any organisation depends greatly on its ability to maintain a balance between demand and supply. Manufacturers cannot wait till they receive confirmed customer orders before starting production they need to plan ahead for production so that they are always ready to deliver enough products to consumers. Their production schedules are based on demand forecasts. Proven production planning and scheduling process help Sony drive end-to-end supply chain optimisation (JDA: Plan to deliver, 2015). Production planning process at Sony is cascaded into three stages. First stage involves development of an Aggregate Production Plan (APP) which is a long-range materials plan and helps the company determine the needed capacity to produce estimated number of units in a few years time. Production capacity of the firm needs to be expanded in case growth is predicted. For example Sony Corporation in the year, 2014 announced their plans to invest in the expansion of Sony Semiconductor Corporation’s Nagasaki Technology Center (“Nagasaki TEC”) and Kumamoto Technology Center (“Kumamoto TEC”) to expand its production capacity as per its APP (Sony, 2014).
Second stage involves development of a Master Production Plan (MPP) which is a medium term plan and has a detailed structure as compared to APP. This plan helps the company determine the quantity and lead time of end products that will be delivered to consumers. For example, Sony is planning to produce 50000 units of Smartphones with 8.0 mega pixel cameras to meet the demand forecast of year 2017. The company’s current inventory can support production of 40000 units but for another 10000 units they will have to release purchase order to vendors (Sony, 2014). Development of a detailed Master Production Plan helps the company effectively manage their supply chain activities to meet this medium term target.
Third stage involves development of a Materials Requirement Plan (MRP) which is a short-term plan often covering a period of days/weeks (Jung, et al., 2007). MRP involves detailed planning of components and raw materials that will be required to support MPP. The plan comprises of complete details of what items are required, in what quantity, when and where. The production planning and scheduling process at Sony is illustrated in diagram below.
Fig.2. Source: Made by Student (2016)
Production planning starts with generation of demand forecast based on which Bill of Materials (BOM) is created (Kersten, et al., 2012). Current inventory is evaluated to input the details for requirements into scheduling process. Production order to issues if all components and raw materials required as present in current inventory, other purchase order is generated to purchase required inventory. Materials resource planning facilitates scheduling process which in turn enhances the overall effectiveness of production process. Master Production Schedule that list the items required to meet medium term plans, planning date, inventory status records and bills of materials are the inputs to Materials Planning Process (Singh, et al., 2013). Unused inventory is moved ahead to be used in next forecast demand cycle. Sony has effectively managed its make process however there have been incidents in the past that they can produced a particular product in huge amount as per the demand forecast but due to change in technology and competition it could not meet its sales targets and had to suffer inventory loses. Techniques like JIT and Lean can help the company prevent inventory losses. Just-in-time manufacturing strategies have helped companies like Dell, Samsung and Toyota increase efficiency of their production systems and decrease waste by receiving goods just when they are needed in the production process, enabling reduction of inventory costs (JDA: Plan to deliver, 2015). This method requires accurate information as input from forecast demand planning system.
Demand forecasting is an important component of supply chain management and helps an organisation attain a balance between projected demand and available supply. Determining the most suitable forecasting method is a complex process especially when a large product line is the subject. Some of the most commonly used forecasting methods are Moving averages, exponential smoothing, regression analysis, hybrid forecasting methods, decomposition forecasting methods and custom forecasting models. Moving averages forecasting model projects forward the average of past actual. This model works on the assumption that recent past represents the future (Vanguard Software Corporation, 2016). The moving averages forecasting model works best for products that change little and presents steady trends. As Sony is a leader in innovation and it has to introduce new innovative products in the market very frequently to match industry trends and maintain its competitive advantage, the moving averages forecasting model is not suited for Sony. Exponential smoothing is referred to as the advanced form of time series forecasting (Vanguard Software Corporation, 2016). This forecasting method possess the ability to capture recurring patterns and trends by emphasizing more from current data and information and smoothing out noise or fluctuations that is created by data randomness. Exponential smoothing compared to moving average is a better forecasting method option for Sony. Regression analysis forecasting model can also be used by Sony to determine the relationship between demand drivers and demand (Vanguard Software Corporation, 2016). This will help the company keep a track of rapidly changing trends and technology, thus keeping in pace with competitors.
Conclusion
Sony Corporation is recognised worldwide for the smooth functioning of its supply chain which in turn helps the company achieve and retain a competitive advantage against rivals. The company indulge in responsible supply chain management wherein they carry out their supply chain operations in a socially and environmentally responsible manner and sources all their components and raw materials from supplier who share common values and adhere to Sony Corporate Code of Conduct. The company effectively manages the flow of physical products and services, flow of information, flow of cash and flow of return products across different stages of its supply chain. However to make its supply chain more cost effective they should consider outsourcing their reverse logistics process to specialised vendors. Sony has effectively managed its make process however to further control their production and inventory cost they should implement production techniques such as Just-in-time or Lean production. Moving averages, exponential smoothing and regression analysis models are the most commonly used models of demand forecasting. However, Exponential smoothing and regression analysis models will be more suitable for Sony as they possess the ability to capture current trends and technological advancements.
References
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