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  May 18 , 2006 - Supply Chain Digest Newsletter
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First Thoughts by Dan Gilmore, Editor

One Heck of a Supply Chain Story


I don’t mean to gush, but I heard one heck of a supply chain story last week.

It’s one that includes themes like consumer-driven, supply chain collaboration, incredible linkage of business and supply chain strategies, the use of Supply Chain Management to drive revenue growth, the impact of SCM on free cash flow, focus on time-to-value with technology vendors, and smart outsourcing, to name a few.

So who deserves such accolades? Panasonic Consumer Electronics. Last week at the i2 user conference, I heard Michael Aguilar, Sr. VP of Strategic Supply Chain Initiatives for Panasonic, take attendees through a very powerful story of what the supply chain is really capable of.

The scenario: with the huge growth of the high end TV market (high definition, plasma TVs), and the nearly ten-fold increase in average selling price for these units over traditional models, Panasonic’s new CEO saw an opportunity to reinvent the company, in large measure using SCM.

According to Aguilar, Panasonic’s CEO had determined, “We can no longer be focused on selling products to dealers. We need to be focused on selling what the end consumer really wants, and to realize the sale doesn’t really happen until that consumer buys the product.”

As logical as that may sound, it is not how most of the consumer electronics industry, or indeed most companies and industries generally, really operate. Panasonic provides a great example. “To do this, we had to totally change our orientation, and virtually all of our processes,” Aguilar said.

Panasonic had to get focused not on channel sales, but point-of-sale at retail; in fact, it had to begin to think not like a traditional consumer goods company, but actually like it was in fact a retailer.

That involved many traumatic changes, including the way the North American sales organization was commissioned and bonused. Bonuses based on channel sales: gone. Bonuses based on point-of-sale: in.

Aguilar himself actually came out of the sales organization. To him, as with most companies, supply chain was a “back office” function. But to accomplish its transformation, he observed that Panasonic would have to “move supply chain from the back office to the front office. Supply chain would be the single most important thing that will ensure our profitability and drive increased sales.”

Panasonic’s goal was not to take out costs, but to drive market leadership in high end TVs and other categories, such as digital cameras.

To reach that goal, new supply chain software was clearly needed, but the traditional implementation cycle of 12-18 months to implement solutions just wasn’t going to work. “When your CEO has an idea, are they willing to wait 12-18 months to implement it?” Aguilar rhetorically asked. The timeline to implement a variety of supply chain applications (demand planning, replenishment, etc.) and get the whole program off the ground: six months.

This was accomplished with a deep partnership with the software provider, i2. Not only were i2 personnel deeply “embedded” in virtually every Panasonic functional team, Panasonic chose to use key “managed services” from i2 to actually run elements of the technology as an outsource provider.

The program and the technology – including many “custom workflows” to meet the needs of individual partners – were successfully rolled out in the six month time frame.

As part of the program, Panasonic also had to reinvent its customer/channel relationships.

“We went to our channel partners and told them, if we can do this, there will be a huge increase in free cash flow that we’ve never experienced, and you’ve never experienced, and a tremendous decrease in markdowns.”

It took more than just agreeing to agree. As a key element of the program, Panasonic wanted to manage forecasting and replenishment for its retailers – a major change in process.

“We no longer looked just at each customer as a customer,” Aguilar said. “We really started to look at each customer DC almost like it was an individual customer,” in terms of managing replenishment. This change was driven in part by data analysis that showed widespread mismatches between retailer DC inventories and the level and profile of demand at those DCs.

There’s a lot more, but the results speak for themselves:

  • In 2005, Panasonic high end TV sales growth increased 500%, versus 200% for the overall market.
  • Incredibly, average weeks of on-hand inventory decreased from about 17 weeks to only four; in the peak Christmas season, on-hand inventory shrank to only two weeks, with no out of stocks. As sales levels exploded, inventory levels remained virtually flat, with near perfect alignment between end demand and retailer DC inventories.
  • Considered a tier 2 or 3 supplier in key categories by many retailers, Panasonic has moved to tier 1 in virtually all of them.

Maybe I’m missing something, but this is the best story I’ve heard in a long while. We’d love your comments.

As a quick aside, we have an exciting line-up of Supply Chain Videocasts™, our new technology that brings traditional webcasts “alive,” scheduled for June. This includes How to Select a WMS, How to Select a TMS, Real-Time Supplier Integration, The RFID-Enabled WMS, and Building a Performance-Focused Logistics Workforce. Please take a look.

What is your take on the Panasonic story? It seems mostly so logical – why is this transformation so hard for most companies? Let us know your thoughts.

Let us know your thoughts.

Dan Gilmore


Knowledge You Need Before Purchasing Voice-Directed Applications in Your Warehouse

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May 18 , 2006

Sign of the Times – Restaurant Chain O’Charley’s Gets Chief Supply Chain Officer


Lawrence Taylor fills the post; more signs the “integrated supply chain function” is the future

May 17 , 2006

i2’s CEO Outlines "Next Generation" Solutions and What i2 Needs to Do to Succeed

Mike McGrath sits down with SCDigest; Optimizing the "Galactic Supply Chain"

May 10 , 2006

Managing Supply Chain Complexity

As SKUs and options pile up, what’s a supply chain to do?

May 9 , 2006

Wal-Mart Inventory Policy Changes Impact Its Suppliers’ Financial Projections, Stock Prices

Maybe all that inventory in the supply chain isn’t so bad, CPG companies may be thinking

May 9 , 2006

RFID Market Shows Signs of Real Growth; Big Ramp-Up Still “Just Around the Corner"

Latest vendor financial results show modest current buying activity, but most see signs of coming demand; RFID label makers are bullish

May 4 , 2006

The Impact of Lead Time Variability

“When you aren’t sure when your ‘stuff’ is arriving, you wind up with too much ‘stuff’,” says Georgia Tech’s Don Ratliff; opportunity to join benchmarking effort


May 4 , 2006

Ten Trends in TMS Software

We’re seeing changes in optimization, delivery models, and support for multi-modes, ARC analyst Adrian Gonzalez says


Q. This definition applies to what term: A simple diagram of every step involved in the material and information flows needed to bring a product from order to delivery?

A. Click to find the answer below


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Feedback is coming in at a rate greater than we can publish it - thanks for your response.

We are now really behind, as our piece last week on " Supply Chain Risk in China?" genetated a tremendous amount of reader response.

This week, we're catching up a bit, and include some letters on SCDigest Contributing Editor Gene Tyndall's column on "Supply Chain and the CXO," and a thematicly related piece on he Limited Brands Paul Mathews' thoughts on "Supply Chain and the Boardroom." That includes our feedback of the week from Ralph Alleman of  Lucite, who says we can expect to see a variety of presures impact global sourcing efforts. We also include a letter from an owner-operator who wonders about the impact of risng transport costs.

Keep the dialog going! Give us your thoughts on this week's Supply Chain topics. As always, we’ll keep your name anonymous if required.


Feedback of the week - on "Supply Chain and the CXO":

Supply chain managers will be pressing their sourcing counterparts that multi-country sourcing is key wherever large and strategic materials exist.  Significant political change has a higher probability in various global sourcing points and assessments of these risks should be a key priority for each company's supply chain analysis.  We will see a growing consultancy work being offered in this area of geopolitical assessments for risk aversion since there are probably less than 1% of even multi-national companies that employ these key resources.  

With regional protectionism growing as seen by most favored regional trade agreements, it will also be important to updated on tariffs, potential embargoes, labor laws and other issues that will impact long term supply capabilities.   Supply and demand will create larger vessels, more flexibility in supply chains, open bottlenecks around ports and create infrastructures to move goods, perhaps not at the speed we think we need, but the real collapse of our supply chains will be driven by any political collapses that are encountered either in a specific country or a region in the world.

Ralph Alleman


On Supply Chain and the Boardroom:


I certainly agree with the issues identified in this strategy level treatment of globalization and supply chain.  I would add the following into the mix:

(1) The need to develop expertise in each country to deal with that country's government.  The extractive industries (oil, mining, etc.) have faced this issue for some time, as the governments consider themselves joint venture partners with the private companies involved.  So you have government bureaucrats involved in capital equipment decisions, sourcing decisions, etc. in the country and often insisting on "local content."  As it becomes clear that any country's long term development requires more knowledge intensive industries, I would expect that national governments will become even more insistent on transferring knowledge-rich functions to remote locations as the price for tapping low cost labor and high growth markets.  The technology companies are already seeing this in China, particularly. 

(2)  The reality that global networks are always potentially in flux.  The challenge is to know both where the opportunities are now and where they will be 3, 5, and even 10 years out.  Hence the concern with inland China as the coast gets more expensive, then the likely onset of Vietnam and then...?  This issue is complicated in that even now supply chains usually take significant time to implement changes, and that the future possibilities are even less capable in terms of infrastructure.

Yes, globablization is discussed everywhere; but there are still many mountains to climb.

Arnold Maltz

Arizona State University


In our company the easiest link is through working capital improvements. Every time to get more efficient and your overall inventories go down, your working capital improves, leaving free cash flow to the company. That is more money for the company to invest in positive NPV projects or acquisitions or reducing leverage ratios and quickly gets reflected in the share value.

Michelle M. Dawson

Director, Supply Chain

Bonded Abrasives NA

On Carrier Cost Structures:

I am an independent that can't understand how a broker can advertise a load for $275 that has travel 200 miles. The truck has to wait at least 2 hours to get loaded, travel 3 to 4 hours, and spend at least 2 hours to get unloaded.  Is anyone addressing things like this.

Kenton Burton

Q. This definition applies to what term: A simple diagram of every step involved in the material and information flows needed to bring a product from order to delivery?


A. Value Stream Mapping

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