Case Study: Sony Electronics Customer Focus and Channel

Collaboration Result in Wal-Mart Supplier of the Year Award

Gartner RAS Core Research Note G00208395, Matthew Davis, Allen Johnson, 8 November 2010, R3537 12212011
Faced with a bleak economic outlook and an unstable demand
signal, Sony Electronics took aim at improving its demand-
sensing and demand-shaping capabilities. Segmenting its retailer
and end-user customer requirements highlighted the need to
better manage store-level demand patterns. By collaborating
with its partners, Sony Electronics improved demand visibility,
which resulted in a better customer experience, improved
in-stock inventory, faster inventory turns and an uptick in
revenue.
Key Findings
A focus on the sell-through requirements to end users will benefit both end-user and
retail channel customers.
For consumer electronics manufacturers selling through retail, joint value creation with
channel partners is essential to sense and shape short-term demand.
Manufacturers can increase revenue, shorten inventory turns and improve forecast
accuracy by sensing demand through point-of-sale (POS) data from the retail channel.
Demand sensing and shaping are best enabled when housed in a process that integrates
demand, supply and product decision making.
Recommendations
Reach more advanced stages of collaborative planning, forecasting and replenishment
(CPFR) by extending the process externally to include key supply chain partners.
Use POS data at the store level to sense short-term demand patterns and differences in
demographic, regional and individual store performance factors.
Shape demand by optimizing price, offering product bundles, adjusting assortments and
tailoring promotions at the store level.
Align metrics with partners and measure new factors, such as marginal profitability, to
establish joint value creation key performance indicators (KPIs).

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WHAT YOU NEED TO KNOW
The recession resulted in cost pressures from customers and
changes in purchase patterns that clouded Sony Electronics view
of demand. The company knew that better visibility to consumer-
buying behavior would help it thrive in a difficult environment. In
this case study, Gartner speaks with Margaret Kairis, director
of customer supply chain operations, Theresa Hill, director of
global supply chain, and C.J. Wehlage, vice president of supply
chain solutions, about Sony Electronics efforts to develop a
sell-through culture that maximizes the companys offering for
each customer. We follow this team as it segments customer
requirements, creates an analytical model based on store-level,
POS data to guide decision making and collaborates internally and
externally to execute new processes.
CASE STUDY
Introduction
When we asked why the company started on its journey toward
improved demand sensing and shaping, Mr. Wehlage said, Sony
Electronics took a systematic approach to better understand our
customers. We felt our end users werent fully engaged in the Sony
experience, and that if we could better understand their needs, we
could better support them. We also knew we had to improve our
already good relationships with retailers. I wanted to be able to tell
them that if you carry X inventory and take Y actions, we can have
a Z desired level of profitability.
To enable this vision, Sony Electronics had to focus on
collaboration, short-term demand sensing and store-level demand
shaping. The company used daily and weekly POS data to sense
and shape demand during the desire and purchase phases of its
product life cycles, resulting in increased revenue, faster inventory
turns, continued demand growth and ultimately being named a
Wal-Mart Supplier of the Year in 2009.
The Challenge
The recession forced Sony Electronics to challenge its standard
ways of doing business, driving the company to better sense
demand from its retailer and end-user customers. Both sets of
customers became more cost focused, and Sony Electronics knew
it had to find ways to best showcase its quality brand in these
market conditions.
To accomplish this goal, the company set out to answer four
questions:
How do we best support each customer at every purchase?
How do we optimize shelf space in a highly cost-competitive
economy?
Can we improve satisfaction, reduce stock-outs and increase
revenue simultaneously?
Are our customers fully engaged in the Sony experience?
On top of these outside challenges, Sony Electronics also
had to solve some internal factors. On the back end of a large
reorganization, the company was several years into enhancements
to its planning processes. Although it was learning to be more
collaborative across functions, there was still a gap between
product management and supply chain.
Approach
Once Sony Electronics established the scope of the challenge, it
went through a process, over the course of 14 months, to design
and implement a solution (see Figure 1).
Although some of these actions took place simultaneously, a
culmination of all the steps resulted in the companys current CPFR
process.
Deepen Customer Knowledge and Segment
Requirements
Sony Electronics has two customers to consider: the retailer and
the end user. These two groups have shared and conflicting
demands. They may demand low costs, certain feature sets,
in-stock availability and selection, but the retailer may also require
precision delivery, vendor-managed inventory (VMI), unique labeling
or other logistics services. To solve this issue, the company
focused on the two groups needs independently.
It segmented the different channel-partner needs and started to
design supply chain solutions based on the resulting portfolio of
requirements. To maximize the benefits of Sony Electronics and
retailers objectives, the company decided it would have to find a
way to best highlight its brand that would also improve in-stock
inventory and increase forecast accuracy, inventory turns and
revenue.
Matching the channel needs was Step 1. Now it needed to
understand how to best support end users. As Ms. Kairis stated,
We wanted to move from a sell-in culture to a sell-through
culture. To do that, we had to not only understand what customers
valued, but also how we performed against those measures. Sony
Electronics believed store-level, POS analytics would provide the
insights to solve the needs of the channel and better sense the
current environment for end users.
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Align Internally
Sony Electronics aligned its KPIs directly to the goals of the
retailers and end users; this updated KPI view became the base
of its CPFR process. Even in the early phases of these efforts, the
company recognized it needed to connect its demand, supply
and product groups as well as its processes and planning groups.
Demand and supply were fairly well connected, but product wasnt
equally represented. Sony Electronics recognized that CPFR was a
unifying forum for the three groups and the process convergence
for demand-sensing and demand-shaping activities. It worked to
integrate product organizations and processes with corresponding
supply chain activities.
Create the Historical Model
Ms. Kairis said, We knew that store-level analytics would help us
better understand demand. We also knew that our retailers werent
just going to give us daily POS data without [us] proving our
hypothesis. We decided to build a model off of historical data that
could show the potential improvement for key metrics.
The company chose i2 Technologies (now JDA) as the software
and service provider to build a model that would aggregate and
analyze all this data. Sony Electronics set targets for revenue,
inventory turns, sell-through and in-stock inventory. i2 applied these
targets to the model to show how Sony Electronics could have
moved inventory, changed pricing and promotions and/or adjusted
forecasts to meet those targets.
Proof Through Pilot
With a strong business case in hand, Sony Electronics approached
a few select retailers with a proposal to pilot the actions it had
tested. Ms. Kairis and Ms. Hill both stressed the way the company
approached retailers was the key to success. Ms. Kairis said, We
didnt want our partners to feel like we were putting them in the
corner. When we approached them, we made sure that our pilot
had clear requirements and benefits for both groups...as well as the
ability to walk away.
Sony Electronics asked its partners for a five-week pilot, which
would stop at any point if the process wasnt working. The
company further narrowed the pilot by using data from the original
model to target a specific subset of stores, rather than every
available location. This went over well and so did the pilot. Less
than halfway through, retailers requested expansion to other stores.
Store-Level Analytics and Execution
The pilot showed that to better execute demand-sensing and
demand-shaping capabilities, Sony Electronics had to analyze data
and trends at the store level. The company again chose i2 as an
analytics service provider, given the success of the model it built.
Electronic data interchange (EDI) feeds were sent daily with store-
level sales data for Sony products. With this level of visibility, the
company could cut the data to identify trends at several levels,
including across the entire product portfolio, by model and region
(with multiple layers), and at the individual store level.
Because the data came through daily and was reviewed weekly,
Sony Electronics could sense shifts faster and anticipate upcoming
trends. The store-level trends also highlighted unique differences
by location. For example, the company found that demographics
played a role in demand at the store level. It identified specific
locations where gaming systems sold very well, and then created
bundles around those products. The Sony Electronics team would
also work with the retail channel to see how its product was being
showcased on shelves, what promotions were active at the time
and how customers were responding. Based on factors like these,
the team would adjust its demand plan to best support each store
and the end users who shopped there.
Closed-Loop CPFR
Sony Electronics CPFR process continued to evolve as it
developed new capabilities and further collaborated with partners.
As the pilot ended and the company moved to sustainment, the
weekly process flowed as shown in Figure 2.
Sony Electronics developed a multistep, weekly CPFR process in
which partners were highly integrated in data collection, exceptions
review and demand planning. The process was cyclical to closely
monitor the actions taken and their results.
The company continues to evolve this process as it learns. It
identified key partnerships and looked for opportunities to integrate
them into the process. As Ms. Kairis said, Before this initiative,
we included supplier information in our CPFR process, but it
was not as broad. That said, we also recognize that not every
supplier needs to be in a weekly CPFR. We will continue to use
segmentation of requirements to identify the right balance of
support.
Figure 1. Workflow
Source: Gartner (November 2010)
Analyze
Customer
Needs
Segment
Customer
Requirements
Align
Internally
Create the
Historical
Model
Pilot at Select
Stores
Continually
Refine CPFR
Process
Expand for
Total Network
Orchestration
Sonys here
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Results
The most visible result of Sony Electronics efforts was being
named a Wal-Mart Supplier of the Year in 2009. The entire team
stated that its selection was a direct result of aligning Sony
Electronics objectives to Wal-Marts KPIs.
The following benefits were shared between Sony Electronics and
its partners:
Double-digit improvement to forecast accuracy
Improved in-stocks by 10% to 15% at the model level
Improved revenue attainment to plan
Optimized and reduced weeks of supply
As we discussed results, Mr. Wehlage quickly chimed in:
Collaboration in itself was a huge win for us. Its not the easiest
task to accomplish, especially when your core focus areas may
be conflicting. In this case, we were able to prove our hypothesis
through a pilot, and that helped build momentum.
Figure 2. Data and Process Flow
Source: Gartner (November 2010)
CPFR Process
Retail Channel
Data Collection and Analytics
KPI
Exceptions
Review
Updated
Forecast
Create CPFR Dashboard:
1. Clean and organize data
2. Overlay Sony plan of record
3. Identify exceptions
4. Capture store-level differences
Store-Level Actions:
Shelf assortments
Promos/pricing
Bundling
Daily, Store-Level
POS Data
Store-Level
Actions
Channel Collaboration:
Identify key channel partners
Store-level details:
Demographics
Regional differences
Assortment
In-store displays
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Critical Success Factors
The team said that collaboration, the ability to walk away and
executive support were critical to Sony Electronics success.
Collaboration Collaboration with partners was clearly the
most influential factor in Sony Electronics success. When asked
about Wal-Mart specifically, Ms. Hill said, We had already had a
strong relationship, but it was not as integrated as it is today. Our
collaboration was heavily focused on supply chain capabilities
and not as much on the product side. The store-level analytics
highlighted that a better understanding of the products and
their consumption in specific locations would lead to better
planning and supportability. From Sony Electronics perspective,
collaboration helped everyone win in the process. As Ms. Hill
said, Sometimes I feel like were operating like one company.
We can walk away Both Ms. Kairis and Ms. Hill said they
repeated this phrase internally and externally before starting
the pilot and at several points during the journey. It seems like
a simple concept, but its more difficult to follow in practice.
This philosophy forced Sony Electronics to proactively identify
objectives and continue to show value toward those targets.
As the CPFR process matured, the show value or walk away
philosophy evolved into a continuous improvement mind-set.
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Executive support and communication Executive support
of this effort came in many forms. Ms. Kairis said, It felt like
our executives had a vested interest in our progress throughout
the journey. They provided resources, directly communicated
updates throughout Sony Electronics and helped formalize
the process by directly participating in our forums. In addition
to the strong messaging from executives, the team said that
communication at every level and across functions was also
critical to success.
Lessons Learned
The team said the entire journey was a learning process, but as
Gartner reviewed its approach and the results, three key lessons
stood out:
Manage the brand, not just the products. Visibility to store-
level demand patterns puts a spotlight on the fact that end
users may not be fully engaged with Sony Electronics as a
brand. According to Mr. Wehlage, The demand patterns
were different enough at the store level that we realized end
users were viewing our brand on a product-by-product basis.
We saw an opportunity to include Sony in a larger portion of
their purchase decisions by bundling products and cross-
merchandising. We also had to shift assortments based on
store-level demand. It was a big change for our supply chain
organization, which was used to managing each product
individually. We had to take a brand-level view as well.
Collaborative planning, forecasting and
replenishment (CPFR)
The business practice that combines the collaborative intelligence of multiple trading partners in the
planning and fulfillment of customer demand. CPFR links sales and marketing best practices, such as
category management, to supply chain planning and execution processes to increase availability, while
reducing inventory, transportation and logistics costs.
Demand management The use of data from market and channel sources to sense, forecast and shape demand as well as
translate demand requirements into actionable plans for supply. The flexibility to apply constraints
necessitated by supply constraints or managerial overrides to support business trade-offs is indicative of
the most effective demand management processes.
Demand forecasting An unconstrained view or best estimate of market demand, primarily based on enterprise-centric historical
sales, shipment and order information.
Demand shaping Using programs, including price, new product launch, trade and sales incentives, promotions, and
marketing programs, to impact what and how much customers buy.
Demand sensing Using customer and channel data to identify demand trends. Traditional sources have yielded structured
data, but unstructured sources, such as weather patterns and chatter on the social Web, are increasingly
important sources of insight.
Supply response The conversion of channel requirements into supply plans based on operational goals and constraints.
Acronym Key and Glossary Terms
Fix yourself first, and then tweak along the way. The
company focused on internal processes first, which helped align
the organization as it integrated partners. Internal and external
participants were consistently encouraged to bring new ideas
and ways to continuously improve the process. As Ms. Hill
stated, We stressed that nothing was final. We were truly in
a mode of continuous improvement. By keeping the process
flexible as it developed, the team was able to rapidly implement
new capabilities and integrate signals from the POS data. Ms.
Hill and Ms. Kairis both echoed that this openness led to better
collaboration with partners. We operate as a trusted chain,
internally and externally. Its a continued effort that we continue
to evolve to improve business overall, said Ms. Kairis.
Visibility can lead to orchestration. When asked whats next
for Sony Electronics, Mr. Wehlage answered without hesitation:
Expand. Where it will add value, we will continue to integrate
other suppliers and partners to create even more visibility
across our network. Collaboration internally and externally
is a big win for us, and now we will focus on orchestrating
our environment. Visibility is essential for that capability. Mr.
Wehlage added that Sony Electronics is improving its ability to
maximize profitability, and that the companys new capabilities
and brand focus are steps in the right direction.