Case Study: Sony Electronics’ Customer Focus and Channel
Collaboration Result in Wal-Mart Supplier of the Year Award
The recession resulted in cost pressures from customers and
changes in purchase patterns that clou...
Align Internally
Sony Electronics aligned its KPIs directly to the goals of the
retailers and end users; this updated KP...
The most visible result of Sony Electronics’ efforts was being
named a Wal-Mart Supplier of the Year in 2009. Th...
•	 Executive support and communication — Executive support
of this effort came in many forms. Ms. Kairis said, “It felt ...
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Sony 2

  1. 1. 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).
  2. 2. 2 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 company’s 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 weren’t 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 company’s 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. © 2010 Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a registered trademark of Gartner, Inc. or its affiliates. This publication may not be reproduced or distributed in any form without Gartner’s prior written permission. The information contained in this publication has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information and shall have no liability for errors, omissions or inadequacies in such information. This publication consists of the opinions of Gartner’s research organization and should not be construed as statements of fact. The opinions expressed herein are subject to change without notice. Although Gartner research may include a discussion of related legal issues, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner is a public company, and its shareholders may include firms and funds that have financial interests in entities covered in Gartner research. Gartner’s Board of Directors may include senior managers of these firms or funds. Gartner research is produced independently by its research organization without input or influence from these firms, funds or their managers. For further information on the independence and integrity of Gartner research, see “Guiding Principles on Independence and Objectivity” on its website,
  3. 3. 3 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 wasn’t 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 weren’t 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 didn’t 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 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 wasn’t 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 Sony’s here
  4. 4. 4 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-Mart’s 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. It’s 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 ForecastCreate 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 Weekly Participation 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 we’re 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 it’s 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.
  5. 5. 5 • 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. It’s a continued effort that we continue to evolve to improve business overall,” said Ms. Kairis. • Visibility can lead to orchestration. When asked what’s 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 company’s new capabilities and brand focus are steps in the right direction.