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

• Afocusonthe“sell-through”requirementstoenduserswillbenefitbothend-userandretailchannelcustomers.

• Forconsumerelectronicsmanufacturerssellingthroughretail,jointvaluecreationwithchannelpartnersisessentialtosenseandshapeshort-termdemand.

• Manufacturerscanincreaserevenue,shorteninventoryturnsandimproveforecastaccuracybysensingdemandthroughpoint-of-sale(POS)datafromtheretailchannel.

• Demandsensingandshapingarebestenabledwhenhousedinaprocessthatintegratesdemand,supplyandproductdecisionmaking.

Recommendations

• Reachmoreadvancedstagesofcollaborativeplanning,forecastingandreplenishment(CPFR)byextendingtheprocessexternallytoincludekeysupplychainpartners.

• UsePOSdataatthestoreleveltosenseshort-termdemandpatternsanddifferencesindemographic,regionalandindividualstoreperformancefactors.

• Shapedemandbyoptimizingprice,offeringproductbundles,adjustingassortmentsandtailoringpromotionsatthestorelevel.

• Alignmetricswithpartnersandmeasurenewfactors,suchasmarginalprofitability,toestablishjointvaluecreationkeyperformanceindicators(KPIs).

2WHAT YOU NEED TO KNOWTherecessionresultedincostpressuresfromcustomersandchangesinpurchasepatternsthatcloudedSonyElectronics’viewofdemand.Thecompanyknewthatbettervisibilitytoconsumer-buyingbehaviorwouldhelpitthriveinadifficultenvironment.Inthiscasestudy,GartnerspeakswithMargaretKairis,directorofcustomersupplychainoperations,TheresaHill,directorofglobalsupplychain,andC.J.Wehlage,vicepresidentofsupplychainsolutions,aboutSonyElectronics’effortstodevelopa“sell-through”culturethatmaximizesthecompany’sofferingforeachcustomer.Wefollowthisteamasitsegmentscustomerrequirements,createsananalyticalmodelbasedonstore-level,POSdatatoguidedecisionmakingandcollaboratesinternallyandexternallytoexecutenewprocesses.

CASE STUDY

IntroductionWhenweaskedwhythecompanystartedonitsjourneytowardimproveddemandsensingandshaping,Mr.Wehlagesaid,“SonyElectronicstookasystematicapproachtobetterunderstandourcustomers.Wefeltourendusersweren’tfullyengagedintheSonyexperience,andthatifwecouldbetterunderstandtheirneeds,wecouldbettersupportthem.Wealsoknewwehadtoimproveouralreadygoodrelationshipswithretailers.IwantedtobeabletotellthemthatifyoucarryXinventoryandtakeYactions,wecanhaveaZdesiredlevelofprofitability.”

Toenablethisvision,SonyElectronicshadtofocusoncollaboration,short-termdemandsensingandstore-leveldemandshaping.ThecompanyuseddailyandweeklyPOSdatatosenseandshapedemandduringthedesireandpurchasephasesofitsproductlifecycles,resultinginincreasedrevenue,fasterinventoryturns,continueddemandgrowthandultimatelybeingnamedaWal-MartSupplieroftheYearin2009.

The ChallengeTherecessionforcedSonyElectronicstochallengeitsstandardwaysofdoingbusiness,drivingthecompanytobettersensedemandfromitsretailerandend-usercustomers.Bothsetsofcustomersbecamemorecostfocused,andSonyElectronicsknewithadtofindwaystobestshowcaseitsqualitybrandinthesemarketconditions.

Toaccomplishthisgoal,thecompanysetouttoanswerfourquestions:

• Howdowebestsupporteachcustomerateverypurchase?

• Howdoweoptimizeshelfspaceinahighlycost-competitiveeconomy?

• Canweimprovesatisfaction,reducestock-outsandincreaserevenuesimultaneously?

• Areourcustomersfullyengagedin“theSonyexperience”?

Ontopoftheseoutsidechallenges,SonyElectronicsalsohadtosolvesomeinternalfactors.Onthebackendofalargereorganization,thecompanywasseveralyearsintoenhancementstoitsplanningprocesses.Althoughitwaslearningtobemorecollaborativeacrossfunctions,therewasstillagapbetweenproductmanagementandsupplychain.

ApproachOnceSonyElectronicsestablishedthescopeofthechallenge,itwentthroughaprocess,overthecourseof14months,todesignandimplementasolution(seeFigure1).

Althoughsomeoftheseactionstookplacesimultaneously,aculminationofallthestepsresultedinthecompany’scurrentCPFRprocess.

Deepen Customer Knowledge and Segment RequirementsSonyElectronicshastwocustomerstoconsider:theretailerandtheenduser.Thesetwogroupshavesharedandconflictingdemands.Theymaydemandlowcosts,certainfeaturesets,in-stockavailabilityandselection,buttheretailermayalsorequireprecisiondelivery,vendor-managedinventory(VMI),uniquelabelingorotherlogisticsservices.Tosolvethisissue,thecompanyfocusedonthetwogroups’needsindependently.

Itsegmentedthedifferentchannel-partnerneedsandstartedtodesignsupplychainsolutionsbasedontheresultingportfolioofrequirements.TomaximizethebenefitsofSonyElectronics’andretailers’objectives,thecompanydecideditwouldhavetofindawaytobesthighlightitsbrandthatwouldalsoimprovein-stockinventoryandincreaseforecastaccuracy,inventoryturnsandrevenue.

MatchingthechannelneedswasStep1.Nowitneededtounderstandhowtobestsupportendusers.AsMs.Kairisstated,“Wewantedtomovefroma‘sell-in’culturetoa‘sell-through’culture.Todothat,wehadtonotonlyunderstandwhatcustomersvalued,butalsohowweperformedagainstthosemeasures.”SonyElectronicsbelievedstore-level,POSanalyticswouldprovidetheinsightstosolvetheneedsofthechannelandbettersensethecurrentenvironmentforendusers.

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Align InternallySonyElectronicsaligneditsKPIsdirectlytothegoalsoftheretailersandendusers;thisupdatedKPIviewbecamethebaseofitsCPFRprocess.Evenintheearlyphasesoftheseefforts,thecompanyrecognizeditneededtoconnectitsdemand,supplyandproductgroupsaswellasitsprocessesandplanninggroups.Demandandsupplywerefairlywellconnected,butproductwasn’tequallyrepresented.SonyElectronicsrecognizedthatCPFRwasaunifyingforumforthethreegroupsandtheprocessconvergencefordemand-sensinganddemand-shapingactivities.Itworkedtointegrateproductorganizationsandprocesseswithcorrespondingsupplychainactivities.

Create the Historical ModelMs.Kairissaid,“Weknewthatstore-levelanalyticswouldhelpusbetterunderstanddemand.Wealsoknewthatourretailersweren’tjustgoingtogiveusdailyPOSdatawithout[us]provingourhypothesis.Wedecidedtobuildamodeloffofhistoricaldatathatcouldshowthepotentialimprovementforkeymetrics.”

Thecompanychosei2Technologies(nowJDA)asthesoftwareandserviceprovidertobuildamodelthatwouldaggregateandanalyzeallthisdata.SonyElectronicssettargetsforrevenue,inventoryturns,sell-throughandin-stockinventory.i2appliedthesetargetstothemodeltoshowhowSonyElectronicscouldhavemovedinventory,changedpricingandpromotionsand/oradjustedforecaststomeetthosetargets.

Proof Through PilotWithastrongbusinesscaseinhand,SonyElectronicsapproachedafewselectretailerswithaproposaltopilottheactionsithadtested.Ms.KairisandMs.Hillbothstressedthewaythecompanyapproachedretailerswasthekeytosuccess.Ms.Kairissaid,“Wedidn’twantourpartnerstofeellikewewereputtingtheminthecorner.Whenweapproachedthem,wemadesurethatourpilothadclearrequirementsandbenefitsforbothgroups...aswellastheabilitytowalkaway.”

SonyElectronicsaskeditspartnersforafive-weekpilot,whichwouldstopatanypointiftheprocesswasn’tworking.Thecompanyfurthernarrowedthepilotbyusingdatafromtheoriginalmodeltotargetaspecificsubsetofstores,ratherthaneveryavailablelocation.Thiswentoverwell—andsodidthepilot.Lessthanhalfwaythrough,retailersrequestedexpansiontootherstores.

Store-Level Analytics and ExecutionThepilotshowedthattobetterexecutedemand-sensinganddemand-shapingcapabilities,SonyElectronicshadtoanalyzedataandtrendsatthestorelevel.Thecompanyagainchosei2asananalyticsserviceprovider,giventhesuccessofthemodelitbuilt.Electronicdatainterchange(EDI)feedsweresentdailywithstore-levelsalesdataforSonyproducts.Withthislevelofvisibility,thecompanycouldcutthedatatoidentifytrendsatseverallevels,includingacrosstheentireproductportfolio,bymodelandregion(withmultiplelayers),andattheindividualstorelevel.

Becausethedatacamethroughdailyandwasreviewedweekly,SonyElectronicscouldsenseshiftsfasterandanticipateupcomingtrends.Thestore-leveltrendsalsohighlighteduniquedifferencesbylocation.Forexample,thecompanyfoundthatdemographicsplayedaroleindemandatthestorelevel.Itidentifiedspecificlocationswheregamingsystemssoldverywell,andthencreatedbundlesaroundthoseproducts.TheSonyElectronicsteamwouldalsoworkwiththeretailchanneltoseehowitsproductwasbeingshowcasedonshelves,whatpromotionswereactiveatthetimeandhowcustomerswereresponding.Basedonfactorslikethese,theteamwouldadjustitsdemandplantobestsupporteachstoreandtheenduserswhoshoppedthere.

Closed-Loop CPFRSonyElectronics’CPFRprocesscontinuedtoevolveasitdevelopednewcapabilitiesandfurthercollaboratedwithpartners.Asthepilotendedandthecompanymovedtosustainment,theweeklyprocessflowedasshowninFigure2.

SonyElectronicsdevelopedamultistep,weeklyCPFRprocessinwhichpartnerswerehighlyintegratedindatacollection,exceptionsreviewanddemandplanning.Theprocesswascyclicaltocloselymonitortheactionstakenandtheirresults.

Thecompanycontinuestoevolvethisprocessasitlearns.Itidentifiedkeypartnershipsandlookedforopportunitiestointegratethemintotheprocess.AsMs.Kairissaid,“Beforethisinitiative,weincludedsupplierinformationinourCPFRprocess,butitwasnotasbroad.Thatsaid,wealsorecognizethatnoteverysupplierneedstobeinaweeklyCPFR.Wewillcontinuetousesegmentationofrequirementstoidentifytherightbalanceofsupport.”

Figure 1. Workflow

Source:Gartner(November2010)

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

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ResultsThemostvisibleresultofSonyElectronics’effortswasbeingnamedaWal-MartSupplieroftheYearin2009.TheentireteamstatedthatitsselectionwasadirectresultofaligningSonyElectronics’objectivestoWal-Mart’sKPIs.

ThefollowingbenefitsweresharedbetweenSonyElectronicsanditspartners:

• Double-digitimprovementtoforecastaccuracy

• Improvedin-stocksby10%to15%atthemodellevel

• Improvedrevenueattainmenttoplan

• Optimizedandreducedweeksofsupply

Aswediscussedresults,Mr.Wehlagequicklychimedin:“Collaborationinitselfwasahugewinforus.It’snottheeasiesttasktoaccomplish,especiallywhenyourcorefocusareasmaybeconflicting.Inthiscase,wewereabletoproveourhypothesisthroughapilot,andthathelpedbuildmomentum.”

Figure 2. Data and Process Flow

Source:Gartner(November2010)

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

Weekly

Participation

Critical Success FactorsTheteamsaidthatcollaboration,theabilitytowalkawayandexecutivesupportwerecriticaltoSonyElectronics’success.

• Collaboration—CollaborationwithpartnerswasclearlythemostinfluentialfactorinSonyElectronics’success.WhenaskedaboutWal-Martspecifically,Ms.Hillsaid,“Wehadalreadyhadastrongrelationship,butitwasnotasintegratedasitistoday.Ourcollaborationwasheavilyfocusedonsupplychaincapabilitiesandnotasmuchontheproductside.”Thestore-levelanalyticshighlightedthatabetterunderstandingoftheproductsandtheirconsumptioninspecificlocationswouldleadtobetterplanningandsupportability.FromSonyElectronics’perspective,collaborationhelpedeveryonewinintheprocess.AsMs.Hillsaid,“SometimesIfeellikewe’reoperatinglikeonecompany.”

• “We can walk away”—BothMs.KairisandMs.Hillsaidtheyrepeatedthisphraseinternallyandexternallybeforestartingthepilotandatseveralpointsduringthejourney.Itseemslikeasimpleconcept,butit’smoredifficulttofollowinpractice.ThisphilosophyforcedSonyElectronicstoproactivelyidentifyobjectivesandcontinuetoshowvaluetowardthosetargets.AstheCPFRprocessmatured,the“showvalueorwalkaway”philosophyevolvedintoacontinuousimprovementmind-set.

5• Executive support and communication—Executivesupport

ofthiseffortcameinmanyforms.Ms.Kairissaid,“Itfeltlikeourexecutiveshadavestedinterestinourprogressthroughoutthejourney.Theyprovidedresources,directlycommunicatedupdatesthroughoutSonyElectronicsandhelpedformalizetheprocessbydirectlyparticipatinginourforums.”Inadditiontothestrongmessagingfromexecutives,theteamsaidthatcommunicationateverylevelandacrossfunctionswasalsocriticaltosuccess.

Lessons LearnedTheteamsaidtheentirejourneywasalearningprocess,butasGartnerrevieweditsapproachandtheresults,threekeylessonsstoodout:

• Manage the brand, not just the products.Visibilitytostore-leveldemandpatternsputsaspotlightonthefactthatendusersmaynotbefullyengagedwithSonyElectronicsasabrand.AccordingtoMr.Wehlage,“Thedemandpatternsweredifferentenoughatthestorelevelthatwerealizedenduserswereviewingourbrandonaproduct-by-productbasis.WesawanopportunitytoincludeSonyinalargerportionoftheirpurchasedecisionsbybundlingproductsandcross-merchandising.Wealsohadtoshiftassortmentsbasedonstore-leveldemand.Itwasabigchangeforoursupplychainorganization,whichwasusedtomanagingeachproductindividually.Wehadtotakeabrand-levelviewaswell.”

Collaborative planning, forecasting and replenishment (CPFR)

Thebusinesspracticethatcombinesthecollaborativeintelligenceofmultipletradingpartnersintheplanningandfulfillmentofcustomerdemand.CPFRlinkssalesandmarketingbestpractices,suchascategorymanagement,tosupplychainplanningandexecutionprocessestoincreaseavailability,whilereducinginventory,transportationandlogisticscosts.

Demand management Theuseofdatafrommarketandchannelsourcestosense,forecastandshapedemandaswellastranslatedemandrequirementsintoactionableplansforsupply.Theflexibilitytoapplyconstraintsnecessitatedbysupplyconstraintsormanagerialoverridestosupportbusinesstrade-offsisindicativeofthemosteffectivedemandmanagementprocesses.

Demand forecasting Anunconstrainedvieworbestestimateofmarketdemand,primarilybasedonenterprise-centrichistoricalsales,shipmentandorderinformation.

Demand shaping Usingprograms,includingprice,newproductlaunch,tradeandsalesincentives,promotions,andmarketingprograms,toimpactwhatandhowmuchcustomersbuy.

Demand sensing Usingcustomerandchanneldatatoidentifydemandtrends.Traditionalsourceshaveyieldedstructureddata,butunstructuredsources,suchasweatherpatternsandchatteronthesocialWeb,areincreasinglyimportantsourcesofinsight.

Supply response Theconversionofchannelrequirementsintosupplyplansbasedonoperationalgoalsandconstraints.

Acronym Key and Glossary Terms

• Fix yourself first, and then tweak along the way.Thecompanyfocusedoninternalprocessesfirst,whichhelpedaligntheorganizationasitintegratedpartners.Internalandexternalparticipantswereconsistentlyencouragedtobringnewideasandwaystocontinuouslyimprovetheprocess.AsMs.Hillstated,“Westressedthatnothingwasfinal.Weweretrulyinamodeofcontinuousimprovement.”Bykeepingtheprocessflexibleasitdeveloped,theteamwasabletorapidlyimplementnewcapabilitiesandintegratesignalsfromthePOSdata.Ms.HillandMs.Kairisbothechoedthatthisopennessledtobettercollaborationwithpartners.“Weoperateasatrustedchain,internallyandexternally.It’sacontinuedeffortthatwecontinuetoevolvetoimprovebusinessoverall,”saidMs.Kairis.

• Visibility can lead to orchestration.Whenaskedwhat’snextforSonyElectronics,Mr.Wehlageansweredwithouthesitation:“Expand.Whereitwilladdvalue,wewillcontinuetointegrateothersuppliersandpartnerstocreateevenmorevisibilityacrossournetwork.Collaborationinternallyandexternallyisabigwinforus,andnowwewillfocusonorchestratingourenvironment.Visibilityisessentialforthatcapability.”Mr.WehlageaddedthatSonyElectronicsisimprovingitsabilitytomaximizeprofitability,andthatthecompany’snewcapabilitiesandbrandfocusarestepsintherightdirection.