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Leagile Manufacturing Paradigm Integration


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The recent decade, the whole world witnessed an awe striking phenomenon when Canon – a leading name in the imaging industry topped the charts of growth and performance with a very significant boost in the Europe region. The facts mentioned in this study acts a reliable barometer to comprehend how theoretical knowledge is transformed to the real world implementation and attests Canon’s escalation in business.

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Leagile Manufacturing Paradigm Integration

  1. 1. A case study that reveals the Supply Chain strategy adopted by Canon Inc. behind their prominent expansion in the European region Western New England University 2012 EMGT 64540 Canon Inc.’s Progress to Pinnacle in Europe Last decade, the whole world witnessed an awe striking phenomenon when Canon – a leading name in the imaging industry topped the charts of growth and performance with a very significant boost in the Europe region. The facts mentioned in this study acts a reliable barometer to comprehend how theoretical knowledge is transformed to the real world implementation and attests Canon’s escalation in business. Karthik Murali Student ID 131629 3/17/2012
  2. 2. March 17, 2012 [CANON INC.’S PROGRESS TO PINNACLE IN EUROPE] ABSTRACT The last decade witnessed an epoch making incident in the imaging industry when Canon, the A-Listed company topped the charts by showing very cardinal numbers in its growth and performance pertaining to the European region of operations. Canon – The organization that boasts of 25 warehouse locations, 2 production facilities in Europe and manufacturing almost 30 million consumer products and accessories achieved a milestone in its 2008 regional sales contributions when they discovered that 33% of the sales came from Europe. The operations did not just involve delivering the value products to the consumers but remaining efficient at the same time. A company that manufactures products that holds a great market value would make sure that the product will reach its consumers on time. For this, it is important that there is clear agreement in the business, clear contribution to the overall strategy and the ability to measure the actual effect by finding the right balance between engagement and direction. This case study discusses the new strategy incorporated by the organization which helped them achieve such a significant boost in sales numbers. Supply Chain Management – a new supply chain model was setup by modifying the current then, to hit maximum sales. Electronic products have always exhibited fluctuating demand, so how and what Canon did to ascertain that they read their demand correct and serviced their customers the best, what was the supply chain technique used by them and how effective it proved to be – the following study will help us answer these questions. As Fran Townsend has quoted, ‘Part of what you need to do in the supply chain is to help your company anticipate events, and understand the environment you operate in – physical, political, economic – around the globe.’[Q1] Supply Chain Strategy - Canon’s Expansion in Europe Page 1
  3. 3. March 17, 2012 [CANON INC.’S PROGRESS TO PINNACLE IN EUROPE] Table of Contents Sr. No. Topic 1. Page No. Introduction 1.1 Canon – A brief introduction 1.2 Growth in Europe 4 1.3 Change in the SCM of Canon Europe 2. 3 5 Old Supply Chain Model 2.1 Concerns in the Old Supply Chain 2.2 The Proposed Model (Seamless Supply Chain) 7 2.3 The Targeted Areas of Change 3. 6 8 The New Strategy 3.1 Leagility – Lean & Agile Manufacturing Paradigm Integration 9 3.2 Leveraging Standard Electronic Business Partnerships 11 4. Conclusions 12 5. References 13 Supply Chain Strategy - Canon’s Expansion in Europe Page 2
  4. 4. March 17, 2012 1. [CANON INC.’S PROGRESS TO PINNACLE IN EUROPE] INTRODUCTION 1.1 Canon – A Brief Introduction The corporate philosophy of Canon is kyosei. A concise definition of this word would be ‘Living and working together for the common good.’ The history of Canon dates back to 1933, when a young gynaecologist named Takeshi Mitarai worked with some technician friends to develop cameras; to do so they founded Precision Optical Instruments Laboratory in Roppongi, Minato-ku, Japan. Their first major invention had applications that ranged far beyond the medical field. By the early 1960s Canon had become the dominant Japanese producer of middle-priced cameras, leaving the higher end of the market to Nikon. The company continued to grow, more than tripling in size between 1959 and 1963. In 1964 it ventured into business machines. Canon continued to introduce new products in the 1980s to compete effectively in mature markets. Much of its success, however, came in new markets, such as integrated office workstations and desktop publishing systems. Often that meant challenging large companies that were well entrenched in their markets. Canon experienced rapid sales and profit growth from its low-water mark in 1975 through the end of the 1980s. Between 1975 and 1985, its annual sales grew sevenfold, to $3.3 billion, and its profits showed a 20-fold increase, to $136 million; by 1989, sales had reached $8.18 billion and profits hit $232 million. Following an exceptional year in 1990, that saw a 27.9 percent increase in sales (to $12.73 billion) and a near doubling in profits (to $452 million), the succeeding years showed slower growth and reduced profits. Profit margins ranged from 1.1 to 1.9 percent from 1992 to 1994 after having ranged from 2.8 to 3.6 percent from 1988 to 1991. Supply Chain Strategy - Canon’s Expansion in Europe Page 3
  5. 5. March 17, 2012 1.2 [CANON INC.’S PROGRESS TO PINNACLE IN EUROPE] Growth in Europe Regional Sales Contribution 2008 Europe Americas Others Japan Graph Source:Canon’s Official Press Release 2008, Canon Inc. The moment that caught utmost attention was when Canon hit the maximum sales figure for Europe. The graph presented above shows the record for the year 2008; Europe gave the max number of 33% of the total sales, followed by Americas at 28%, then Japan constituting a 21% share and the rest of the world summed to be 18%. This overarching boost in the sales was because of the introduction of a new supply chain mechanism by the organization’s team whose focus was on improving the European operations. Supply chain plays a very vital role when an organization starts showing up impressive figures on the sales charts. Canon not just identified the flaws in its previous supply chain model but also made sure that there were modifications made at the correct points to attain a more robust model which did not make the model more efficient in functioning but also gave results – Results not just refers to the profit margin that the company enjoys but also the consumer satisfaction of getting value for money products and services. Supply Chain Strategy - Canon’s Expansion in Europe Page 4
  6. 6. March 17, 2012 1.3 [CANON INC.’S PROGRESS TO PINNACLE IN EUROPE] Change in the SCM of Canon Europe London, December 3rd, 2007 – Canon Europe, world leader in imaging solutions, appointed Perry Buenen as Chief of Supply Chain Management, responsible for further strengthening customer collaboration across the company’s Pan-European supply chain infrastructure. Perry Buenen replaced Stefano Zenti who was the chief of ICT & Supply Chain Management, who was still the Chief of ICT Europe. As the chief of Supply Chain Management, Perry enhanced the model with a focus on customer interaction and contribution. In one of the press conferences in the late 2009, Perry said that Canon supply chain infrastructure in Europe followed a highly robust model with strategic hubs to support the network and key growth markets. The creation of a new distribution hub in Dubai helped them to radically decrease delivery times by up to 26 days, via direct shipment from factories in Japan to Dubai. They leveraged Dubai’s supply scale within a lower overall cost structure and supported future business growth and supply chain strategies via trans-shipments to Europe and surrounding markets. Canon’s Corporate Releases, 2007 | courtesy: Once the information about the new model is shared, it becomes an easier task to figure out what was actually done and implemented which then became a prime reason for the company’s ascent in the European sector. Now, let’s take a look at what was the structure of the supply chain before it was modified. Europe’s net sales was $14,741 million and it employs approximately 11000 people – so the model is extremely vast and a bit complex too because the resources not just comprises of infrastructure management throughout the continent but also each element involved in making it work like a charm. Supply Chain Strategy - Canon’s Expansion in Europe Page 5
  7. 7. March 17, 2012 2. [CANON INC.’S PROGRESS TO PINNACLE IN EUROPE] The OLD SUPPLY CHAIN Model 2.1 Concerns in the Old Supply Chain Many Hand Overs This leads to a decrease in the sales efficiency which not only reduces customer count but also affects the performance of the organization Duplication of Activities Not Always Predictable There was a lot of duplication of activities throughout the supply chain as the different DCs were not linked properly Since the supply chain was effective to just a considerate extent but not fully optimized, it was unpredictable most of the times SmartArt1 The diagram above shows the challenges that Canon faced in their old supply chain mechanism which was modelled for Europe. The old supply chain model had an overlay of primarily three main concerns – many hand overs, duplication of activities and unpredictability. There were many hand overs of the products and it not only decimated the sales efficiency but also depleted the customer count. It also affected the organization’s growth and performance. There were duplications of activities too. It results in the delay of the cycle and also causes a hindrance in appropriate and timely communication amongst the elements present in the supply chain. Since there were these anomalies affecting the functioning of the model, it became a problem for predicting – understanding the market, customer profile and to formulate strategies and then forecasting outcome using the real world facts. It was very clear that if the flaws would be left neglected, then the backwash would be impenetrable. The team then understood the importance about eliminating these discrepancies and hence, the modifications were implemented thereby securing the market hold, the image of this citadel and stabilizing the growth of the company. Supply Chain Strategy - Canon’s Expansion in Europe Page 6
  8. 8. March 17, 2012 [CANON INC.’S PROGRESS TO PINNACLE IN EUROPE] The Proposed Model 2.2 Cost Reliable & Predictable Process Transparent Visibility Process Alignment Seamless Supply Chain Service & Efficiency •Minimum interference between Supplier Suppliers and Customer Canon •Eliminate process steps - company - cost •Align required process steps •Adoptable supply chain through shared Customers resources SmartArt2 The proposed model was that of a seamless supply chain where there would be minimum interference between the supplier and the customer. This would be possible only if there would be perfection in the process alignment. The visibility of the process alignment was a concern to be dealt with here. If the integration was at par with the expected level then the service and efficiency would definitely show up a better graph. It would also help the predictability, reliability, transparency, the process, the whole supply chain network, the inventory and also the cost to a very commendable level. Supply Chain Strategy - Canon’s Expansion in Europe Page 7
  9. 9. March 17, 2012 2.3 [CANON INC.’S PROGRESS TO PINNACLE IN EUROPE] Targeted Areas of Change Logistics Network Consolidated Inventory Costs Value Added Services Shared Business Principles End to End Measurement Standard Premium Clear SLAs Legibility Process & Organization Single Ownership Orders Mgmt. Function Integration Integration System & Visibility Transparency Internal Balance End to End External SmartArt3 The main targeted areas of change were – the logistics network, organization and process, the business principles which had clear service level agreements and finally the whole system and its visibility. In the next section, we will be looking at the actual theoretical concepts that have been used to transform the supply chain into a more fine fettle version when compared it to its predecessor. Supply Chain Strategy - Canon’s Expansion in Europe Page 8
  10. 10. March 17, 2012 3. [CANON INC.’S PROGRESS TO PINNACLE IN EUROPE] The New Strategy 3.1 Leagility – Lean & Agile Manufacturing Paradigm Integration The two paradigms i.e. Lean Thinking and Agile Manufacturing maybe de distinctly different but they have been combined here for a successful design and a totally operated supply chain mechanism by Canon to stabilize their growth in the market. Agility means utilizing the market knowledge and a virtual corporation to exploit profitable opportunities in a volatile market place. Leanness means developing a value stream to eliminate all waste including time, and to ensure a level schedule. The problem that Canon was facing in the Europe sector was that it was not able to understand the consumer profile and it lacked enough market knowledge. Perry Buenen, who was the chief of the Supply Chain Management for Europe & Middle East – used the lean and agile strategy to cut and dry the supply chain model. Theoretically, we know that leanness and agility are both closely related to the total supply chain strategy and the positioning of the decoupling point. The decoupling point separates the part of the organization oriented towards customer orders from the part of the organization based on planning. The new model stressed on delivering with value, Meeting Customer Requirements Fitness for Use Process Integrity Elimination of Waste Continuous Improvement Design Quality Assurance Distribution & Administration Inventory Materials X X Customer Support Product Service Product Support Flexibility to meet Market Changes Flexibility to meet Customer Demand Time to Market - Concept to Delivery - Order Entry to Delivery Response to Market Forces Lead Time SmartArt4 The above model can be expressed as, Value = Quality x Service Cost x Lead Time Supply Chain Strategy - Canon’s Expansion in Europe Page 9
  11. 11. March 17, 2012 [CANON INC.’S PROGRESS TO PINNACLE IN EUROPE] They key point in this whole strategy is the decoupling point. The Canon team not just identified the problem of the fluctuating demand they needed to deal with, but they also realized that if they would postpone the decoupling point until as late as possible and ensuring that the product differentiation also occurred at that point, then it would act as an added advantage for them. Push Plan Material Pull Flow Pull Execution The Decoupling Point Stockholding SmartArt5 Here, the lean paradigm is applied to the supply chain upstream of the decoupling point. A number of value streams were used for the smooth flow of the standard products. The agile paradigm was applied downstream from the decoupling point as the demand was fluctuating and the product variety per value stream increased. In the previous supply chain model, the stockholding point was at the distribution centres with the market specific products, but here the stockholding point is set according the aggregate forecast of demand and the idea was to move differentiation to the distribution centres and pull out stockholding from them. The afterthought of Perry Buenen was to model an efficient and robust supply chain mechanism that would not help Canon Europe to just meet the fluctuating demands of the consumers there, but also come up with instant solutions then and there if there would be any obstacles in the functioning in the supply process. He did not stop by just implementing the lean and agility paradigms together but also gave a thought which led to another conception of leveraging standard electronic business interfaces to enable adaptive supply chain partnerships. The new brainchild of enabling an adaptive supply chain partnership did act as a continuous parallel support system to the new supply chain model created back then. It was an arduous task indeed, but it did pay off when Canon flaunted impressive figures on the sales charts in the succeeding years. Supply Chain Strategy - Canon’s Expansion in Europe Page 10
  12. 12. March 17, 2012 3.2 [CANON INC.’S PROGRESS TO PINNACLE IN EUROPE] Adaptive Supply Chain Partnerships Perry had recognized that the market had become a hypercompetitive environment which was influenced by dynamic customer preferences, shifting industry boundaries and an emerging global competition. A specialized partnership for complementary activities would then become an extended enterprise. When the commitments to serve a market region is shared, the pressure on the supply chain automatically reduces to a very noticeable extent and that’s exactly what Canon’s supply chain management team was looking at. Perry aimed at placing the distribution hubs strategically which were working together in order to meet the variability in the demand of the products in the market. Information Exchange •Quality of Info. Exchange •Privileged Info. Exchange Use of SEBIs •Support System •Parallel & Simultaneous Backup •Control Variables •Mutual Adaption Cooperation & Relationship SmartArt6 The use of Standard Electronic Business Interfaces refined the old model so well that this actually led the European distribution centres to meet their demand limits even at a point when the distribution centres used to fall short of stock. With the use of the right technology and digitally enabling the possibility of an extended enterprise in venturing for the growth of the whole organization, by providing the needed support at the right time to the right region; did give Canon the much awaited frog leap in the sales figures during that year. It is a herculean task to develop such a supply chain that faces an ambiguous demand environment and also gives results – but the SCM Team of Canon proved that this could be done by implementing and blending simple theoretical concepts into action for the real world. Supply Chain Strategy - Canon’s Expansion in Europe Page 11
  13. 13. March 17, 2012 [CANON INC.’S PROGRESS TO PINNACLE IN EUROPE] 4. Conclusions Canon focused on building a one E2E Supply Chain as an Enabler. It showed immense concentration on the infrastructure involved in modelling the more flexible, efficient and coordinated supply chain which when implemented acted as a great impetus in the growth of the organization. To summarize, the following points were given much attention, • Regional Structure - Limited number of hubs - Shared network for different channels - Limited port of entries • Pre-Installation combined in Distribution Centres • Management & Organization • Functional Inclusion - Order Management - Pre Delivery Installation • Transparency of the whole system (visibility) The two concepts of Leagility and Adaptive Supply Chain Partnership with SEBIs helped the company to amplify the previous flaws that were present in their supply chain and to boost their performance and business by delivering the products on time with value of the product and services kept in mind. Perry Buenen’s vision of seeing the European sector giving out the maximum business and customer satisfaction came true when the company hit the charts with a thrilling 33% share of the regional contribution in the year 2008. The famous quote from the Father of Lean Manufacturing – W. Edwards Deming says, “Change is required. There is a process of change, just as there is a process of manufacturing, or for growing wheat. How to change is the problem!” [Q2] Supply Chain Strategy - Canon’s Expansion in Europe Page 12
  14. 14. March 17, 2012 [CANON INC.’S PROGRESS TO PINNACLE IN EUROPE] 5. References Articles, Presentations & Press Releases [1] a b J. Ben Naylor , Mohamed M Naim, Danny Berry (1999), ‘Leagility: Integrating the lean and agile manufacturing paradigms in the total supply chain’, International Journal of Production Economics 62 [107-118] Source a Logistics Systems Dynamics Group, Department of Maritime Studies & International Transport, University of Wales Cardiff b Formerly Logistics Systems Dynamics Group, now Hewlett Packard, Filton Road, Stoke Gifford, Bristol, UK [2] Arvind Malhotra, Sanjay Gosain, Omar. A. El Sawy (2007), ‘Leveraging Standard Electronics Business Interfaces to Enable Adaptive Supply Chain Partnerships’, Information Systems Research [Vol. 18, No. 3, September 2007, pp. 260-279] [3] Perry Buenen (2009), ‘One Canon – One Supply Chain’ Source [4] Margaret Baumann (Antec 2003), ‘Decision Tools for an Enhanced Supply Chain Part I – Why Should I Optimize my Supply Chain?’ G. H. Associates, Lebanon, NJ [5] Canon’s official press releases (2008, 2009) Source [6] History of Canon Source1, Source2 Images [1] [2] [3] Canon Official Logo on Cover Page – Google Images Link Globe1 – Google Images Link Globe2 – Google Images Link SmartArt ™ Diagrams Sr. No. 1 2 3 4 5 6 Type Increasing Circle Process Converging, Step Up & Vertical Chevron List Table Hierarchy Regular Text Box Phased Process Alternating Flow Title Concerns in the Old Supply Chain Seamless Supply Chain Targeted Areas of Change New Model’s Representation Decoupling Point Adaptive Supply Chain & SEBI Supply Chain Strategy - Canon’s Expansion in Europe Page 13