September 1, 2007
operations insight | Rapid Replenishment

Fast, furious, and flexible

fast, furious, and flexible

A rapid replenishment approach to production and distribution helped Fujitsu boost computer and server sales by 130 percent in just four years.

By James A. Cooke

Four years after entering the U.S. Computer market, Fujitsu Computer Systems Corp. had a revelation. To succeed in this highly competitive arena, it would need to move faster and manage its inventory and costs more aggressively. The way to get there: a flexible supply chain made possible by rapid replenishment.

But Fujitsu's drive to boost its flexibility didn't end with retooling its supply chain. The company has also proved to be flexible when it comes to adapting its rapid replenishment model to meet current supply chain realities. Over the years, for example, Fujitsu has tweaked its demand planning process to shorten lead times. It has also blunted the impact of soaring fuel costs by adjusting its shipping and production processes in a bid to take advantage of the most cost-effective transportation modes.

Aligning supply with demand
Fujitsu Computer Systems, which is the U.S. subsidiary of Tokyo-based Fujitsu Ltd., first entered the competitive North American computer market in 1996. In the beginning, the company, which was making products to forecast, often found itself struggling to turn a profit. Before long, it realized that it needed to find a business model that would allow it to better align inventory with customer demand.

To that end, Fujitsu turned to a make-to-order manufacturing strategy and a direct-ship delivery model, also known as the "rapid replenishment" approach. Under this model, the Sunnyvale, Calif.-based company takes orders from U.S. customers for its laptop and server computers, builds them to customer specifications in Japan, and then ships the finished product across the Pacific to the United States.

A major advantage of rapid replenishment is its extreme flexibility. The business model virtually eliminates the need to keep inventory in stock (and enables the company to turn what inventory it does have 50 times a year). "Because we have no inventory in the pipeline, we are able to change and react very quickly to market conditions," says Kevin P. Wrenn, senior vice president of PC business and operations. "Our ability to respond to the market gives us total flexibility with our business model."

Keeping tabs on demand
The company set the stage for its shift to rapid replenishment by creating a front-end Web interface to process orders from both consumers and businesses. Initially, Fujitsu used the Web mechanism only for personal computer orders. But the approach worked so well that the company has since expanded it to include orders for servers and storage devices. All communication with customers regarding product and order information is handled online.

The order site for businesses also features a tool that provides potential customers with price quotes. "The quote tool database and the order management database are linked so there's no duplication of effort," says Wrenn. "By linking up the quote number, order entry is seamless, and it saves us a lot of time and improves the customer experience."

Once an order is placed on the Web site, the system automatically calculates a delivery date based on parts availability in Fujitsu's Japanese factories. The personal computers are made to order in a plant in Shimane, Japan, while the larger server computers are built in a facility in Kasashima, Japan. The two factories use a pull system to get parts from more than a hundred suppliers. Key vendors also locate stock near the factory in order to respond rapidly to requests for replenishments.

Each day, the U.S. operation feeds order information to the factories for use in demand planning. Fujitsu's homegrown demand planning application then looks at the customer demand data and adjusts production on a daily basis, rather than waiting for a weekly forecast.

Because the product configurations are limited, it's a relatively simple matter for the Fujitsu factories to keep tabs on their parts needs. "In terms of hard drives and memory, there are only a small number of components they need to manage," Wrenn says.

But the business hasn't always operated that way. Four years ago, the U.S. operation tried to engage in demand planning as well. The company, however, soon concluded that the method ended up duplicating work and has since decided to leave it to the factories to assess parts needs. The result has been an improvement in the stability of supply and a 30-percent reduction in lead times. "We spend our focus on keeping component flexibility at the factory," Wrenn explains. "There's no such thing as forecasts. It's all about how you manage demand."

Fast response
Once the computers are finished, they're shipped out to the United States in a couple of different ways. Personal computers assembled at the Shimane factory are generally trucked to Kansai International Airport about six hours away in Osaka.

From here, Fujitsu ships them via direct flights to regional hubs in the United States. At the hubs, the shipments are broken out and sorted for final delivery. Wrenn says that personal computer orders are usually delivered in four to six days. In fact, an order placed on Monday generally ships by Friday.

Deliveries for servers are handled somewhat differently. These shipments are turned over to freight forwarders, which manage the movement of the goods from the Kasashima plant to one of six U.S. gateways: New York, Atlanta, Dallas, Los Angeles, San Francisco, or Chicago. The freight forwarder in the United States takes care of customs clearance. Because Fujitsu is C-TPAT certified, about 95 percent of its shipments qualify for "wheels up" treatment or electronic clearance prior to the plane's arrival.

When the servers arrive in the United States, a third-party logistics service company (3PL) takes over the delivery. (The average distance for deliveries from the gateway to a customer location is somewhere between 300 and 400 miles.) The 3PL also handles the communication and detail coordination with the customer. In addition, the 3PL works in concert with Fujitsu's field engineering staff, which handles the actual installation once the 3PL has delivered the product to the customer. Wrenn says that low-end servers ship in seven to nine days after order placement, while high-end servers ship in 12 to 15 days.

Although the company employs the direct-ship approach in order to minimize its inventory, it does maintain a small amount of stock at a Memphis, Tenn., facility, which also acts as a service operations center. Wrenn reports that less than a million dollars' worth of inventory is kept on hand in the Memphis facility. Most of that inventory is used to fill sameday and next-day orders placed online.

Weighing the cost of speed
Air freight would seem the natural modal choice for a company pursuing a rapid replenishment strategy. And in fact, Fujitsu originally shipped all of its products by air. But in the past year, the company has begun shifting some of its freight to a more cost-effective alternative: ocean service.

What prompted the move was a steady increase in airline fuel costs. "Fuel surcharges got to be upwards of 18 or 19 percent," says Wrenn. "That's very significant, so we started looking at alternative ways to manage costs." As it weighed its options, the company decided that maybe some of its shipments weren't so time-sensitive after all. In particular, many of its large corporate orders had rollout times of two months, which opened up the possibility of moving some of the merchandise by ocean. Ultimately, the company decided to give it a try. "What we ended up doing was building the product early and putting it on a boat in time for when the customer needed it," Wrenn says.

When it comes to large orders these days, Fujitsu will send some of the product by air and some by water. For example, if a large West Coast retailer orders on an eightweek cycle, Fujitsu will manufacture the product required for week one and week four of the rollout at the same time. The week-one orders will be sent by air, while week-four orders will go by ocean. The company will follow the same production pattern for the next phase of the cycle: It will build week-two and week-five orders at the same time, but week-two merchandise will get the faster air treatment, while the week-five products will take the boat.

The savings, not surprisingly, can be substantial. "It costs us 10 bucks to ship a computer by ocean," reports Wrenn, "and 30 bucks to ship by air." Though the majority of the company's shipments still move via air, ocean freight has made significant inroads. At present, Fujitsu spends $8 million annually on air movements and about $1 million on ocean.

Flexibility pays off
The rapid replenishment model has served Fujitsu well. Last year, the U.S. division recorded almost $700 million in personal computer and server-storage sales—up from $300 million just four years ago. It built and shipped more than 200,000 personal computers and more than 3,000 servers under the rapid replenishment model in 2006 alone.

In fact, the approach has worked so well that Fujitsu's parent company has since extended it to other parts of its multinational operation. Fujitsu now uses this model for its home market in Japan, for large Asian sales, and for European orders of its low-cost computers.

Fujitsu credits the rapid replenishment model with enabling it to compete by keeping inventory to the bare minimum. "The model is helpful in reducing our costs," Wrenn says. "We don't have a lot of inventory in the pipeline, and we haven't had a write-off in four years, here in the States or in the factory."

The model has also allowed Wrenn to hold down labor costs in the United States. When the company added server computers to the personal computer business, he says, his 40-person operations group was able to absorb the added workload without any expansion in staff.

But rapid replenishment's biggest benefit may be its inherent flexibility. "When it comes to changes in the market, we can make changes in real time with no impact," Wrenn says. "We've won quite a few deals because of our ability to respond. We react and as a result, we get the revenue."

About the Author

James A. Cooke
James Cooke is a principal analyst with Nucleus Research in Boston, covering supply chain planning software. He was previously the editor of CSCMP’s Supply Chain Quarterly and a staff writer for DC Velocity.

More articles by James A. Cooke

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